Euro Recovery Tentative

The US dollar is softer, but in terms of price action there are two developments.  The first is the recovery of the euro from the sell-off before the weekend on the Greek exit rumors.  The euro recover to a high near $.14440 in early Europe before steadying.  The second feature is the strength of the dollar bloc, perhaps haleped by the recovery in commodity prices from last week's shellacking and the more hawkish RBA.   Note China releases its trade figures tomorrow and ideas that April will show a significant recovery from the lunar new year distortions in March may also be encouraging some gains in commodities and the Australian dollar today. 

Sterling is flattish against the dollar, though lost ground against the euro.  Softer Halifax house price index and news that some private sector groups (like the CBI and CIPS) may be shaving UK growth forecasts have not been significant drviers.  Wednesday the BOE releases its quarterly inflation report and the new growth and inflation forecasts are seen as significantly more important. 

German trade figures were mind-blowing.  The March trade surplus came in at 18.9 bln euros.  The consensus was for 11.8 bln and in Feb there were just below 12.0 bln.  Exports were up a ehady 7.3% on the month to just above 98 bln euros.  Exports are up 15.8% year-over-year.  Imports were up 3.1% on the month and almost 17% on the year.  This is a yet another testimony to the German economic prowess,  but its export oriented development is also part of the challenge for the euro zone. 

There does not seem to be fresh developments on the periphery of Europe today after the weekend unscheduled meeting.    Peripheral bonds are under pressure and we note that Spain is also experiencing some modest pressure today, note as much as the other peripheral countries, but the pressure is evident throughout the curve and CDS prices.  Financial stocks are generally under more pressure than the European bourses as a while and this applies to Spain as well.    Spain's stock market is among the weakest in Europe today, led by health care and financials. 

The peripheral issues are not yet thought to be sufficient to derail an expected July ECB rate hike.   It might influence the timing of when the ECB gets rid of its three-month lending facility at a fixed rate for unlimited amounts.