On Monday global equity markets finally entered some calmer waters following a very nervous close on Friday evening. This relative calm gave the risk sensitive euro some much need breathing space as it rebounded from the lows of USD1.3852, a level not seen since July 2009. Nevertheless, most Asian stock markets still closed in negative territory as traders and investors digested the impact of ongoing strong Chinese PMI data.
However, considering the extent of Friday’s losses the damage in Asia was relatively contained. This positive start to the new trading month extended to Europe where equity markets started to claw their way back from last week’s sell off and which translated into a further rise for the euro against the US dollar as the markets put Greece’s debt problems onto the back burner. Indeed just as the EURUSD regained the USD1.39 price handle the release of some spectacular US ISM data (58.4 against a forecast of 55.5) seemed to wrong foot the market as traders seemed unsure whether to trade the risk, ie push the euro higher, or support the dollar in anticipation of a potential hike in interest rates. However, with equities consolidating it was the euro which gained with a consequent weakening of the US dollar. This in turn helped to spark a strong reversal in commodities with spot gold surging back and oil regaining the $75 per barrel price point.
Today’s fundamental news likely to cause market reaction is the US pending home sales which have come in much better at 1% as opposed to a forecast of 0.4% which analysts have attributed to the reinstatement of a federal tax credit. However, whilst this data has certainly helped to boost the S&P500 to an intraday high of 1100 it should be noted volumes for both yesterday and today have been decreasing thereby suggesting that the present rebound may fizzle out later in the week as the markets wait for the ECB (European Central Bank) rate decision and employment data from the US. The trading week culminates with the Non Farm Payroll data on Friday. Meanwhile the market may also return to the Greek fiscal problems and whilst credit spreads appear to have eased for the time being the crisis in the eurozone (and for the euro) cannot be underestimated.
Other market news saw the RBA (The Reserve Bank of Australia) wrongfoot the market by keeping interest rates on hold at 3.75% (analysts had expected a further rise to 4%) and which prompted the Aussie Dollar to drop almost 150 pips against the US dollar and almost as much against the Japanese Yen. RBA Gov Glenn Stevens explained in a statement that whilst consumer inflation “has risen somewhat recently…temporary factors that had been holding it down are now abating,” and added that the level of inflation this year is expected to be consistent with the RBA’s target.
However, since this dramatic fall the Aussie is starting to climb back as equity markets gain & risk appetite returns to the markets.
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