- US data upsets the risk apple-cart, raising stakes for today’s IS
While perhaps a little early to conclude that the trend of stronger US data has been broken, yesterday’s weaker than expected prints caused enough concern to upset the ‘risk on’ mood. Aside from an ‘as expected’ Q4 Employment Cost index, the S&P Case-Schiller house price index, Chicago PMI and Consumer Confidence all disappointed, leaving US equities struggling for oxygen. Adding to support for the USD were speculative accounts locking in the bulk of January’s ‘risk-on’ currency profits on the last day of the month; the effect of this was most pronounced in the case of the euro, which fared worse than either the NZD, GBP or AUD, although SEK was once again the worst performer in G10. The weaker numbers suggest there is going to be more nervousness surrounding the US ISM release (and too ADP) later today. We have revised our IMM forecast to 54.4 from 54.7 originally (and up from 53.9 in December) not because of the Chicago PMI print but due to benchmark revisions (on new seasonal factors) published yesterday. These push down the December level from which a modest January rise is forecast.
- Asian data fails to deliver clarity on local growth prospects…
A slew of important Asian data this morning has failed to shed much light on the outlook for global growth. The official China PMI came in stronger than expected at 50.5 – although not as strong as the 52 that had been whispered in advance. However the Chinese Finance Minister warned of the difficulties facing the export sector. In contrast, South Korean trade numbers were disappointing, but officials said they expected a rebound in February. Data from both countries suggest Europe remains the weakest link in the global trade arena – but this hardly comes as a surprise. AUD has treaded water for much of the day; with mixed domestic data (PMI stronger, house prices lower) also failing to provide a clear direction. We continue to favour a lower AUD on a more significant washout of positions, firstly against the USD but also against the other commodity currencies.
- US, Eurozone and UK numbers also important, latter ahead of next week’s ECB and BoE meets
Today will also see the various Eurozone manufacturing PMIs (Ireland, Germany, France, and Spain) and flash Eurozone estimate. Flat readings vs. December (and which recall painted a less negative picture for Germany in particular) are generally expected. The January Eurozone CPI estimate will also be important ahead of the ECB Council meeting next
week and where we see a rate cut as possible if somewhat more likely in March. The UK manufacturing PMI is seen lifting to 50.0 from 49.6, but will have to be very much better than this to douse expectations for a new QE announcement when the BoE meets next Thursday. We still like buying GBP into weakness, QE expectations notwithstanding, and continue to forecast EURGBP at 0.80 in the coming few months.
- Focus back on intervention prospects in USDJPY – and in EURCHF
USDJPY holds precariously above the 76 level, with stops assumed below the figure, below the previous low of 75.57 and below large barriers said to exist at 75.00. We believe authorities will be reluctant to act while the USD is weakening broadly, but a more significant continuation of yesterday’s risk-off could see action on a break of the previous low. In EURCHF, we believe that while a test of the 1.2000 level may be inevitable at some stage, the SNB’s credibility is on the line and they will not be found wanting.
BNP Paribas