G3 Recap 3-11-11

Main Items:

  • An 8.9 magnitude earthquake hits 150 miles off the coast of Japan. A tsunami has followed. At least 100 are dead with many missing. Several aftershocks continue to hit the region, including a 7.1 magnitude and 6.5. There are concerns over radiation leaks at nuclear power plants and residents in one area have been evacuated.
  • US Retail Sales ex Autos and Gas rose 0.6% MoM in Feb vs 0.5% expected and 0.2% previously. The 3m annualized rate of growth for the ex-gas, building materials and auto dealers measure was 4.5% vs 4.7% previously.
  • U Michigan Confidence declined to 68.2 in March vs 76.3 expected and 77.5 previously.
  • Canadian Employment was unchanged at 7.8% in Feb vs 7.7% expected. An increase in part time employment offset a fall in full time employment
  • Dudley: Fed still ‘far away’ from achieving its dual mandates, and ‘must not be overly optimistic about’ the growth outlook. However, he also said that job growth is likely to increase ‘considerably’ more rapidly.
  • Saudi Day of rage appears to be a non-event.

Overseas Data:

  • Chinese Data for Feb:
  • CPI was unchanged at 4.9% YoY vs 4.8% expected. PPI rose to 7.2% YoY vs 7.0% expected and 6.6% previously
  • IP rose 14.9% YoY vs 13.0% expected
  • Fixed Assets Investment rose to 24.9% vs 23%.
  • Retail Sales growth dropped to 11.6% vs 19.0% expected

UK PPI Output Core slowed to 3.1% YoY in Feb vs 3.4% expected and 3.2% previously


  • The Japanese earthquake predictably lead to a sell off in USDJPY, but it looks like the effect is likely to be contained given the amount of economic damage done. The Kobe earthquake was much more damaging and while Yen rallied sharply a few months after, the driver was more likely slowdown expectations in the US and the Clinton administration’s trade rhetoric. This suggests that there may be opportunities to sell USDJPY puts next week.
  • RE: the commentary yesterday: The below chart of the Fed’s SOMA holdings (white) and the S&P gives a graphical representation of the support the Fed has given risk assets. This suggests that we could see a repeat of 2010 price action, in that the current correction could be brief (like last Jan/Feb) as the Fed continues to buy, with a possible more serious correction occurring after May as QE2 ends.


3 thoughts on “G3 Recap 3-11-11

  1. Why did earthquake in japan leads to JPY to strengthen while earthquake in NZ saw NZD getting sold off hard?

    1. Panda – it all boils down to the net financial holdings position.
      Japan has been running a current account surplus all these years, and they’ve been recycling that surplus into foreign assets. To rebuild, they are expected to repatriate those foreign holdings, although if those positions were FX hedged, the currency impact would be smaller.
      New Zealand, on the other hand, has been running a current account deficit. As a result, a large amount of assets in New Zealand are held by foreigners, who likely scrambled to exit their holdings ahead of each other.
      Hope that helps.

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