httpvh://www.youtube.com/watch?v=Nmc-ZW-52gw
Risk appetite dims then recovers with Fukushima.
• Four cents in four days; Aussie dollar puts on weight.
• European debt & MENA political risk remain in vogue.
• US recovery still lacks conviction.
The local unit has had a sharp recovery this week after posting fresh 2011 lows off the back of uncertainty surrounding the Japanese disaster. The local unit then travelled north off the back of progress stabilising the Fukushima reactor and levels of low 97 cents became a distant memory as we surpassed 1.01 USD. Amidst a data vacuum locally, the Aussie was left exposed to global risk appetite. The Bank of Japan supported risk appetite by offering a combination of greater liquidity to financial markets while engaging in currency intervention to weaken the yen, already under pressure from safe haven flows and investment repatriation. With the absence of a nuclear disaster transpiring, risk appetite increased significantly. Broadly speaking, the global growth story is unlikely to be significantly affected from this crisis because although Japan is the third largest economy, it makes up less than 10% of Global GDP.
The Eurozone sovereign debt crisis has become more prominent in recent days, particularly surrounding Portugal’s minority government. Portugal’s minority socialist government may be overturned if the austerity policy it’s proposing isn’t approved by the opposition which will likely then require assistance from the EU and the IMF due to upward pressure on sovereign bond yields. The risk in Middle East North Africa has also become more prolific with social unrest and political upheaval continuing to spread. Recent unrest in Libya has continued in Yemen with protesters demanding President Ali Abdullah Saleh’s resignation. This has prompted fear of the unrest erupting in key oil producer Saudi Arabia, putting upward pressure on oil prices.
We’ve had a wealth of US data out this week and despite some encouraging pieces, economic growth is still lacking the weight needed to significantly improve employment conditions. The positive data included Initial Jobless Claims (385K) decreasing and the Philadelphia Fed Manufacturing Index (43.4) which showed a marked improvement. The news that came within analyst expectations included Industrial Production (-.1%), Capacity Utilisation (76.3%) and Leading Indicators (43.4). The data also highlighted the recent spike in input prices such as food and oil with PPI (5.6%) and CPI (2.1%) both measuring sharp increases, mildly undermining the US recovery.
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