Wednesday 4th February: European Open Briefing

Global Markets:

  • Asian stock markets: Nikkei up 1.90 %, Shanghai Composite gained 0.25 %, Hang Seng rose 0.90 %, ASX rallied 1.20 %
  • Commodities: Gold at $1264 (+0.35 %), Silver at $17.34 (+0.15 %), WTI Oil at $52.38 (-1.30 %), Brent Oil at $57.78 (+1.40 %)
  • Rates: US 10 year yield at 1.81, UK 10 year yield at 1.463, German 10 year yield at 0.351

News & Data:

  • New Zealand Employment Change 1.2 %, Expected: 0.8 %, Previous: 0.8 %
  • New Zealand Unemployment Rate 5.7 %, Expected: 5.3 %, Previous: 5.4 %
  • Australia AIG Services Index 49.9, Previous: 47.5
  • China HSBC Services PMI 51.8, Expected: 52.8, Previous: 53.4
  • BOJ Deputy Governor Iwata says the pace of CPI to pick up
  • BOJ Governor Kuroda says will adjust policy as needed to achieve stable 2% CPI
  • BOJ Governor Kuroda says CPI likely to reach 2% around FY2015; to achieve price target at earliest time possible
  • BOJ Governor Kuroda says central bank to continue easing until 2% inflation stable
  • ECB’s Weidmann: Risks of government bond purchases outweigh benefits
  • Weidmann: Deflationary spiral not very likely, sees inflation rates rising gradually in the medium term
  • RBNZ Governor Wheeler: NZD still unjustifiably and unsustainably high, sees further drop despite recent fall
  • Wheeler: RBNZ expects to keep rates on hold for some time, says rate stability prudent in current situation
  • China Slows Down: Gauge of Services Industry Slips to Six-Month Low (BBG)
  • Asian Stocks Rebound as Material, Energy Shares Lead Advance (BBG)
  • PBOC Strengthens Yuan Fixing to a Level That Forced Appreciation (BBG)

Markets Update:

Oil had a huge rally yesterday, gaining more than 9 % on the day, which then led to broad USD weakness in the FX market. WTI was trading at $44 on Friday and reached a high of $54 yesterday, a 20 % increase in just three days. The commodity currencies benefited from this, most notably the Canadian Dollar. USD/CAD saw a 1000 pips rally in the past one month, so it was just a matter of time. Oil was the right catalyst and the pair fell to a low of 1.2350, down 300 pips from the Sunday opening level. Should the USD position covering continue, we could see further losses and eventually a test of the 1.21 level, where the pair was trading last on January 21st, before the Bank of Canada surprisingly cut interest rates by 25 bps.

AUD/USD recovered to the pre-RBA levels around 0.7825. The price action suggests the market was already positioned for a RBA rate cut, so it will more to drive the Aussie Dollar significantly lower – either renewed USD strength/weak commodities or very weak econ data that would force the RBA to cut rates again in the coming months. Key resistance now seen in the 0.7850-60 area. If the pair breaks & closes the day above it, we could see a further short squeeze up to 0.7950. Meanwhile, NZD/USD benefited from better than expected employment change data. The pair rose to a high of 0.7447 overnight and might soon test the January 28th high at 0.7492. RBNZ Governor Wheeler spoke earlier and repeated that the NZD remains too strong, but also said that the RBNZ sees a period of stability in rates as likely.

Upcoming Events:

  • 08:15 GMT – Spanish Services PMI (54.9)
  • 08:45 GMT – Italian Services PMI (50.0)
  • 08:50 GMT – French Services PMI (49.5)
  • 08:55 GMT – German Services PMI (52.7)
  • 09:00 GMT – Euro Zone Services PMI (52.3)
  • 09:30 GMT – UK Services PMI (56.3)
  • 10:00 GMT – Euro Zone Services PMI (56.3)
  • 13:15 GMT – US ADP Employment Change (225k)
  • 14:45 GMT – US Services PMI (54.3)
  • 15:00 GMT – US ISM Non-Manufacturing PMI (56.3)

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