Japan Retail Sales Disappoint, EUR/USD Continues Declining

 | May 28, 2015 05:22AM ET

Will they? Won’t they? Greece and its creditors offered different views on their negotiations. Greek PM Tsipras said that a deal was “close” and government official said an agreement was being drafted, but there was no confirmation of that from the creditors’ side. On the contrary, German Finance Minister Schaeuble said he was “surprised” by the Greek comments, which may have been made in order to quell outflows from the banks. The ECB Wednesday declined to raise the amount of Emergency Liquidity Assistance (ELA) that it supplies to the Greek banking system, despite reports that some EUR 300mn a day (= EUR 1.5bn a week) is leaving the banks. This will put more pressure on the Greek government to come to an agreement, otherwise they risk having to declare a bank holiday and capital controls, which will not boost their popularity. It does seem to me that the end of this long drama is approaching, and it seems to me that the Greek side has more to lose. I would expect that PM Tsipras will give in, but whether he can get approval from the Greek parliament for an agreement is another question. EUR-NEGATIVE.

Japan retail sales disappoint Japan’s retail sales for April rose only 0.4% mom, less than forecast. The sluggish rise signals a weak start to Q2. Demand hasn’t yet recovered completely from the hike in the consumption tax a year earlier. JPY was not materially affected by this news in particular; rather, it seems to be under pressure generally, probably due to technical factors after it broke out of its recent range. (In fact the big move in USD/JPY coincided with the announcement of the Australian capital spending figures. It may be that investors felt that as AUD/JPY plunged, the yen’s appreciation vs AUD had gone too far and started selling JPY.)

Australian investment plunges In Australia, private capital expenditure for Q1 fell twice as rapidly as expected, down 4.4% qoq instead of the expected 2.2% drop. The Reserve Bank of Australia is looking for other industries to take up the slack as mining investment falls, but apparently that hasn’t happened yet. On the contrary, mining investment was down 4.1% qoq in Q1, while manufacturing investment was down a much faster 8.5% qoq. Added to the sluggish growth in China and this makes it more likely that the RBA will have to cut rates again. Expect AUD to remain under pressure (it fell the most of any G10 currency over the last 24 hours).