Spain’s Downgrade Put Pressure on the Euro
After a largely quiet first half of the week, there are a number of noteworthy developments today. The most important of which is arguably Moody’s downgrade of Spain to Aa2 and maintaining a negative outlook. This took place hours before the Bank of Spain is to publish each bank’s capital needs. Spanish officials have indicated that it would not exceed €20 billion or 2% of GDP. Moody’s says it could really cost up to €50 billion.
Germany reported a smaller than expected trade surplus in January of €10.1 billion about 30% smaller than expected. The key to the disappointment was that exports fell 1% on the month instead of the rise of 0.7% that the consensus expected.
Another look at the data reveals the re-orientation on German exporters that is one of the important aspects of its economic prowess. Exports within the euro zone rose almost 19% from a year ago. Exports outside of the EU increased by nearly 31%. January industrial production rose 1%, twice what the market expected. Tomorrow market participants will be watching the German CPI (700 GMT). The weakness in peripheral yields might be trumped with a strong CPI.
In the UK, the BOE left interest rates unchanged, which took some steam out of the Pound. Tomorrow the UK PPI data (930 GMT) will be watched closely given the strong effect inflation has on the BOE decision.
China unexpectedly reported a trade deficit for February. The $7.3bln shortfall is the largest monthly trade deficit in seven years. The consensus was for a surplus of around $5 billion. While some observers may see in the data the long awaited shift toward internal/domestic led growth, such a conclusion seems premature. The markets took this news to heart and sold riskier assets. Equity markets across the globe sold off, while the dollar was the beneficiary of today’s trading.
The Australian dollar traded heavily after the employment number showed headline loss of 10k jobs. This was largely because of a large shift from part-time jobs (-57.7k) to full-time (+47.6l). The rise in full-time jobs was more than twice the consensus forecast of total job creation.
