Dollar strong despite weak data. Stocks take a hammering.
04/Feb/2014 • Currency Updates•
Volumes light with most of Asia on holiday as the market gallops into the year of the horse. Right now the markets looking a gift horse in the mouth with the flurry of dollar strength stemming from an improved outlook for the U.S economy and ensuing capital flight out of EM. US equities got kicked in the head by the horse with the Dow and S+P flirting with 7 month lows.
Bundles of data out this week with the crescendo as ever being Friday NFP.
All in a fairly miserable affair for the pound yesterday. London closed with Sterling slipping against both the greenback and Euro. The recent carousel of positive data and last weeks strong GDP figure-2.8%- has produced a domino effect in the FX markets leading to a pound ascent against most pairs.
Mutterings on the street of the pound being overextended have been heard over recent weeks. Noises now that the consistent improvement in the U.K economy has resulted in the market pricing in this rise therefore making further pivots to the upside a little tricky.
Sterling started taking a dip in the morning following UK data coming in a whisker below expectations. A very slightly less bullish reading of manufacturing PMI was enough to tip the scales. The market called 57.0 alas we saw 56.7. Realistically the reading is nothing to be sniffed at, UK manufacturing is still enjoying an upswing and frenzied factory floors are working at a pace not since the summer season of 2011. Worth noting manufacturing still chips in around 18% to total GDP.
Sterling is likely to bounce around resistance levels for most of the week with the key play being data out of the US with the market eagerly awaiting Fridays NFP.
Data of note today includes- construction PMI.
Pleasant day for the Euro yesterday with a rise against the pound for the first time in 5 sessions, the Euro rose a full percentage point after strong factory data contrasted with a weaker than expected report from the U.K. The Euro was a surprise top scorer over the second half of last year, however most still feel the pound will retrace against the Euro in the long term as UK growth is weighing in superior to that of Europe.
The Euro saw a little uplift against the dollar yesterday although London opens this morning with these gains looking to retrace. Presently a flood of hot money from the developing world is tipping Euro stocks and moreover the currency to the upside. The debt laden periphery is also seeing notable support as the market begins to view them as a worthwhile risk.
The improvement in the Euro has begun traders questioning the ECB stance and inevitable chatter over a potential alteration on Thursday is increasingly present.
Data of note today includes Italian CPI and Spanish employment change. All eyes towards the ECB on Thursday.
A shocker for US manufacturing yesterday did not dull the dollar. It continues to bully its most traded pairs and in particular emerging market currencies which have fallen victim to significant capital flight as the wider outlook for the US economy continues to improve.
London closed with the Dollar up against both Sterling and the Euro. The USD spot index a gauge of its performance against its most traded pairs ticked up a solid 1.2% US T bills also rallied to the upside.
On the flip side stocks took a nosedive with poor US and Chinese data leading to vast sells as investors tipped money into safer investments. ISM manufacturing PMI collapsed to its lowest figure in 8 months. This was blamed on bad weather however not all are entirely convinced.
Janet Yellen was officially sworn in and the market will now look to her to guide the QE program with the general consensus for another reduction in QE to the tune of $10B. Yellen is ultra dovish and the market feels this sentiment is likely to continue in her role as Fed chair.
Key play for this week is Friday NFP with the street calling a big number.
Data of note today includes- factory orders, redbook index.
Asian markets came out of the Chinese new year celebrations with a bit of a whimper, with the Japanese equities market leading the sell off. In Australia, language from the central bank suggesting no further loosening of monetary policy pushed the Aussie Dollar up 1.5% against the US Dollar. Elsewhere, Brazil recorded its biggest ever trade deficit, at $4.1 bn, as the effect of its devalued currency is yet to take hold with exporters.