11.03.2011 - XTB market snapshot

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Date: 2011-03-11 09:15

Earthquake in Japan and higher CPI in China / S&P500 – the lowest since January / EURUSD – the summit under pressure / Events to watch – US retail sales, PPI in UK.

Earthquake in Japan and higher CPI in China

If there wasn’t enough of bad news recently, the earthquake hit Japan today, sending a new wave of uncertainty throughout the markets. While it’s far too early to judge economic consequences of this catastrophe, fresh memories from New Zealand were felt both on equities and (however to a limited degree) on the yen. Usually, such events have only a short-lived impact on the market and when it comes to the yen it might be so. However, for equities it is yet another negative impulse, coming on top of political meltdown in Africa and the impact on oil, renewed debt concerns in Europe and not so bright economic message from China.

Speaking about China, after weaker activity indices and exports data there were suggestions that monetary authorities will be allowed to take a pause from tightening. Inflation data released today suggests otherwise. Both CPI (4,9%) and PPI (7,2%) were higher than expected and reaffirmed an inflation concern in China – and given a social context of inflation highlighted already in Africa – this concern is not to be ignored. In other words, further tightening moves might be just around the corner and this is not what industrial commodities and (in the second line) equities want to see.    

S&P500 – the lowest since January

The S&P500 futures left a triangle formation yesterday which in turn led to a successful test of a support at 1292 pts. and brought the price to 1278 pts. today in the morning. A target for this triangle is at 1262 pts., precisely in line with a local low from late January. Thus, this should be perceived as a minimum target for a correction.

EURUSD – the summit under pressure

Heads of the eurozone start a summit today, hoping to find some long-term solution to debt crises among member countries (in theory) and to avoid contagion spreading to Spain (in practice). The pressure is there with yesterday’s cut of the Spanish rating.

For the euro it would have been better if the summit didn’t took place (at least in a short term) as it moves the focus from prospective interest rate hikes back to the debt crisis. The EURUSD is still trying to defend a key support of this year’s rally (the one we pointed at yesterday), however, unless there is a turnaround in sentiment on the market, it might be a hard task.

Events to watch – US retail sales, PPI in UK

Japanese earthquake joins the list of intangibles which are really the key for the markets these days (others are obviously Libya and the region and the impact on oil prices as well as euro zone summit and the debt crisis) and in this context even a key release like the US retail sales for February (8.30 ET, 14.30 CET, consensus +1% m/m, +0,6% m/m for the core) may pass overlooked. This is even more true for the UM index (9.55 ET, 15.55 CET, consensus 76,5 pts.) and the Canadian employment data (7.00 ET, 13.00 CET, consensus +24k) – unless the latter one surprises like the Australian figure did. UK’s PPI (4.30 ET, 10.30 CET, consensus 5,3%) is as usual important for the GBP.   

Przemysław Kwiecień PhD, Chief Economist

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