Japan core machinery orders--leading indicator of capex--likely down 3.7% on-month in January, marking 1st fall in 2 months, following December's robust 20.1% jump, according to economists polled by Dow Jones, Nikkei. But there's little reason to be pessimistic, some say. Expected (on-month) drop likely a "technical decline" that often follows unusually strong growth, says Morgan Stanley chief economist Takehiro Sato in report (he tips 5.6% fall in January). Adds, "we maintain our view that the underlying trend of machinery orders has started stabilizing." Previous data show October-December core orders +0.5% on-quarter, 1st gain in 7 quarters. Data bode well for nation's fragile economy as capex makes up 15% of GDP in Japan, though it may take some time before full-fledged capex recovery. Data due at 2350 GMT.
1-month ATM USD/JPY implied volatilities tick up to 11.10%/11.80% vs 11.05%/11.75% in NY overnight as spot's fall increases demand for downside protection vs USD/JPY. Bid of implied volatilities could rise toward upper-11% levels if spot market extends losses to 89.00, Tokyo options dealers say; USD/JPY last at 90.03. "On views that the dollar may trend higher, players had bought dollar-call options with a Y92 strike price. But now those deals are disappearing" as spot's rise look difficult for now.
U.K. February retail sales up sharply on-year with British Retail Consortium saying like-for-like sales +2.2% on-year after falling 0.7% in January; compares with +3.0% expected from Dow Jones poll of economists. Food store sales weaker after shoppers stocked up on goods during snowbound month of January; clothing and footwear sales grew more sharply in February vs January, sales of homewares and furniture returned to growth, BRC survey shows. "Despite appearances, these results are not that strong," says Stephen Robertson, director general of the BRC. "The growth is compared with very weak figures a year ago when February saw the worst of last winter's weather and this February's performance was helped by sales postponed from January." Suggests that while consumers more confident, willing to spend, UK emerging from recession, people remain cautious as unemployment continues to rise, ahead of widely expected tax rises, government spending cuts.
Rise in UK house prices slowed sharply in February as supply outpaces demand, says Royal Institution of Chartered Surveyors; says in seasonally-adjusted terms, proportion of surveyors reporting rise in house prices exceeds proportion reporting fall by 17 percentage points; compares with January's revised 31-point rise and well below 32-point rise tipped by Dow Jones poll of economists. "Most market indicators are still positive and consistent with further house price increases," says RICS spokesperson Jeremy Leaf; "However, the magnitude of the gains going forward is likely to continue to ease reflecting the fact that new supply coming onto the market is starting to outstrip fresh demand."
GBP/JPY down as weaker-than-expected U.K. February house price balance, lingering U.K. fiscal health concerns prompt investors to reduce risks, says Mizuho Corporate Bank senior market economist Daisuke Karakama; "players remain very sensitive to the U.K.'s huge deficit issue and economic fundamentals." GBP/JPY down almost 90 sen at 135.22 vs New York overnight level. Adds, "I don't expect the pound to rise back to pre-Lehman levels" in long-run (unit at 198.15 at end of August 2008). Says BOE may be forced to execute further monetary easing, which could weigh on unit. GBP/JPY's floor at 134.00.
USD/JPY has positive medium-term outlook, with rise above 93.78 possible, its highest level in past 3 months (marked January 8), says Barclays Capital FX analyst Yuki Sakasai; last at 90.25. Notes U.S. Treasury yield may trend higher in part helped by Fed asset purchase program ending at end March, which may buoy USD. Adds gains in pair could be in "better weather after February's snowstorms (that ground business to halt) could push up U.S. economic data for March," including non-farm payrolls next month. Says "the dollar has more upside risks than downside on views that the U.S. economy is well positioned to recover."
