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By: Gaurav Kashyap, Head of DGCX Desk at Alpari ME DMCC
With the Greek story moving to the background for the time being, market focus has shifted back towards the global growth story. With traders still digesting a healthy US jobs number, the renewed optimism saw US equities get a nice boost this week - the Dow Jones Industrial average gained 2. 4% in the week, taking the average to its highest levels since December 2007 while the S&P500 also moved to its highest levels since May 2008, closing the week 2. 43% higher.
Japanese Yen sees continued depreciation
As the data in the US continues to impress, the Fed moves further away from QE3, and this will keep the US Dollar well supported in the interim. The Greenback closed the week -0. 50% against EUR and -1. 1% against the British Pound but the FX story of the week was the continued depreciation of the Japanese Yen.
USDJPY closed its sixth straight week of gains - seeing the pair move from 75 levels to Friday's closing at 83. 44, a gain of almost 9%. With the data out of Japan hinting at a major slowdown (Q4 GDP contracted -0. 7%, Exp -0. 6%, Prev -2. 3%) the Yen has suffered in its role as a funding currency.
With the prospects of the US Dollar improving following the positive flow of US economic data, the primary funding currency of choice has been the Japanese Yen solely and with risk markets taking a nice boost with Greece avoiding a default, the carry trade as continued to pile on the misery for the Japanese Yen. This week's BoJ meeting saw the central bank hold rates between 0-0. 1% and kept the asset purchase program unchanged.
US data shows improvement across key metrics
It was a light economic calendar in the US this week with the key numbers all improving- advanced retail sales during February increased to 1. 1%, up from 0. 6% previously while the Empire manufacturing index increased to 20. 21, up from 19. 53.
The Philadelphia Fed index grew to 12. 5, up from 10. 2 while notably US inflation remained in check (YoY US CPI was unchanged at 2. 9% / YoY CPI ex Food & Energy 2. 2%, Prev 2. 3%). The FOMC announced that they would keep their rates unchanged at 0. 25% as largely expected.
And with Bernanke giving his semi-annual testimony to Congress the week earlier, markets weren't expecting any major surprises from the accompanying statement. The rhetoric remained largely the same with the focus on increasing employment and keeping prices in check.
The FOMC maintained its key focus points - the moderate expansion of the US economy, the dropping yet still elevated unemployment rate, the depressed housing sector and improving household spending. With regards to QE3, the Fed said "they expect to maintain a highly accommodative stance for monetary policy" and would keep the federal funds rate at exceptionally low levels through 2014.
Eurozone data shows positives from Germany, but Spain budget deficit increases
Across the pond, Eurozone consumer prices came exactly in line with expectations (YoY Core CPI at 1. 5%) with the bright spot on the European calendar being that of the German ZEW which increased to 22. 3, up from 5. 4.
Perhaps the only worrying news from Europe was that Spain's budget deficit increased to 8. 5% in 2011 (more than the 6. 0% expected) which adds weight to the fact that structural reform still remains a big problem for the Eurozone.
With Greece all set to receive its second bailout worth EUR130 billion (earlier in the week there were some discussions between the EU and the IMF as to the international agency's participation in the bailout) and avoid defaulting on maturing bonds on March 20th, European bond yields dropped (Spanish and Italian yields fell below 5%) and the EUR made some modest gains in the week.
Staff
