Market Drivers Dec. 11, 2012
Greek buyback, strong Spanish T-bill auction, sharp rebound in ZEW all help risk rally
AU Business confidence plummets
Nikkei -0.09% Europe 0.67%
Europe and Asia:
AUD Business Sentiment -9 vs. -1
EUR French NFP -0.3% vs. -0.3%
EUR German ZEW 6.9 vs. -11.4
CAD Trade Balance 8:30
USD Trade Balance 8:30
USD Economic Optimism 10:00
German investor morale hit a seven month high in November helping to lift EURUSD to 1.2975 in morning European dealing as the ZEW survey handily beat expectations. The ZEW survey improved markedly printing at 6.9 versus -11.6 eyed as investors looked for stabilization in Europe and further recovery in US. The ZEW reading seemed to suggest that investors believed that Germany would be able to avoid a recession and begin to grow again as the year progressed.
The news helped to propel the EURUSD to fresh session highs as the pair was also boosted by strong Spanish T-bill auction which saw an uptake of 3.8 Billion versus 3.5 originally planned. The yields were also lower dropping to 2.778% verus 3.034% last.
The surprisingly strong ZEW results suggest that investors in the region are more optimistic about a rebound than the ECB or BUBA, both of which lowered their forecasts for 2013. Much of that assumption rests on the idea that periphery economies may have bottomed and that global demand, especially from US will likely pick up in 2013.
Elsewhere in Australia business confidence slumped in November sending Aussie lower in Asian session trade but the currency rebounded in early European dealing as better risk flows and brought it back to even. Business confidence in Australia sank to a three year low printing at -5 for the second month in a row while the index reading collapsed to -9 from -1 the month prior.
The news suggests serious pessimism amongst the 600 firms surveyed and puts into question the relatively sanguine assumptions of the RBA regarding growth in 2013. Up to now the most recent Australian economic data has been uneven with Retail Sales weaker than forecast but employment holding up. However, the sharp decline in business confidence may signaling a deeper decline in aggregate demand that may force the RBA to lower benchmark rates once again at the start of 2013.
The Aussie dropped to a low of 1.0460 in early Asian session trade, but bids ahead of the 1.0450 barrier helped to support the pair and it traded back to opening ranges by the time of European open. The Aussie remains in a very tight 1.0450-1.0500 range, with slight upward bias as investors continue to hope for an improved global outlook for growth, looking for a stabilization in Europe and resolution of Fiscal Cliff issues in the United States.
In North America the calendar is relatively quiet with only Trade Balance and Economic Optimism on the docket. Markets anticipate a small deterioration in trade data and a pick up in sentiment, but neither report is likely to have much impact as focus remains on Washington DC. If there is even the slightest hint of progress on the Fiscal Cliff talks, risk assets should rally and EURUSD could target 1.3000 as the day proceeds.