Risk appetite lacks follow-through in a lackluster Asian session

UK data still on weak side; Australia data the opposite

A muted session overnight with few data releases of note to drive sentiment and direction. EUR was mildly positive at the onset as a result of leftover bullishness from Friday’s move, but barely managed above 1.37 versus the USD before reversing. German industrial production was below forecast (+0.6% m/m vs. +1.0% expected, +1.6% prior) and took some of the shine off the EUR while Moody’s caution on Portuguese banks escalated the slide. GBP was again an under-performer following comments from BOE’s Barker, and came under increasing pressure in the Asian session.

A report from Moody’s suggested that, once the “extraordinary” support to UK banks was withdrawn, some financial institutions could face a senior debt and deposit rating downgrade if they have not improved their standalone strength. The market’s knee jerk reaction was to pile a bit more pressure on GBP while Asian traders also latched on to the weaker of the UK data releases during their time-zone. The RICS house price balance for February came out much weaker than expected (17 versus 30 consensus and a revised 31 prior) though the data appeared to have been leaked with a WSJ story pre-empting the data release.   A RICS spokesperson said the magnitude of gains (in house prices) is likely to continue to ease reflecting that fresh supply is starting to outstrip demand.

The same cautionary note was attached to the BRC retail sales report. While the headline figures looked good at +2.2% y/y in like-for-like store sales and +4.5% y/y in total sales, it was noted that the annual comparison came from a very low base effect and this February’s rebound from a weather-affected January. Overall there was very little of a positive note to be garnered from the data and GBP slid to just below 1.50 versus the USD and 0.9075 versus the EUR.

In other data releases, second-tier Australian data was better than forecast with the NAB business conditions index rising to 8 from 3 previously while the business confidence index also rose to 19 from 15, rebounding back to the highs seen last November. Furthermore, Australia’s February job advertisements showed a strong rebound from the surprise decline in January, surging 19.1% m/m to its highest level in a year, suggesting the January disappointment was just a temporary blip. Leading up to the unemployment data on Thursday, the improvement in advertisements has sparked talk that we may see another big jump in jobs creation (recent surveys show the market estimates a further 15k jobs were created) and a possible further fall in unemployment. In currency markets, AUD’s gains post-data were relatively muted with gains limited to 10-15 ticks and stalling at the 0.91 mark.

There is nothing spectacular on the data horizon today to give risk another jolt, with European releases restricted to Norway consumer confidence and Swiss CPI together with UK trade data. It is also another quiet North American session with NFIB small business optimism and IBD/TIPP economic optimism the only releases scheduled while Chicago Fed’s Evans speaks later.