03 February 2014 The Big Picture • The dollar was generally stronger this morning, gaining against most G10 and EM currencies. The only real exception in the G10 was the CAD. USD/CAD surged through 1.12 in early US trading Friday but then fell back sharply as money managers rebalanced their hedges at the end of the month. Given the technical nature of the move, I expect it will be only temporary and this pull-back may represent a good opportunity to establish new short-CAD positions. The government and the central bank agree that the currency is too strong; why fight them? On the other hand, the dollar’s gains against SEK, CHF, EUR and NOK were fairly even. It gained less against GBP and the two other commodity currencies. AUD/USD was down only slightly after the official Chinese PMI came in as expected at 50.5. The Australian PMI on the other hand fell further into below-50 territory and Australian building approvals were below expectations. The NZD rebounded after the Treasury said the Reserve Bank of New Zealand is expected to raise rates in March, which everyone knew already but it’s nice to have it officially confirmed. • Today is January PMI day. We already had the official Chinese PMI – as expected – and the Australian PMI – a decline. During the European day we will get PMIs from Sweden, Norway, Switzerland, Italy and the UK. The UK PMI is expected to be unchanged from December, which should at least keep GBP steady. Germany, France and Eurozone as a whole also publish their final manufacturing PMIs for the same month. In US, the ISM manufacturing PMI is forecast to have fallen to 56.0 from a revised 56.5 in December. That could dent the strong dollar temporarily. • We have only one speaker scheduled: ECB executive board member Sabine Lautenschlaeger testifies at the European Parliament’s economic and monetary affairs committee in a hearing on her nomination to be vice chair of the ECB’s new supervisory Board. • As for the rest of the week, the main event will be the ECB meeting on Thursday. The market focus on this decision is increased after Friday’s announcement that inflation in the Eurozone slowed to +0.7% yoy from +0.8% yoy. Remember that the ECB cut rates back in November after the CPI dropped to +0.7% yoy from +1.1% yoy, and since then it has consistently warned that its mandate is “symmetrical,” that is to say, it is as worried about inflation being too far below target as it is about inflation being above target. Last month ECB President Draghi dismissed a drop in German inflation as a technicality related to a change in how they calculate the index; the market will be waiting to see whether he considers this month’s decline also to be a technicality or whether it is symptomatic of something the ECB should be concerned about. We also have a BoE rate decision at the same day, although those are generally non-events owing to the Bank’s forward guidance. It will be much more important to see what changes the Bank makes to that forward guidance in the following week’s Inflation Report. Finally, there will be an RBA meeting on Tuesday. The market is pricing in a 96% probability that they do not change rates, so that looks pretty certain; the big question then will be what hints they give for the direction of future policy. • The other big event of the week will be the US non-farm payrolls for January. The figure is forecast to return to its normal levels, at +181k, after the surprisingly small rise of +74k in December. The US unemployment rate is estimated to have remained unchanged at 6.7%. Rising NFP and a steady unemployment may erase concerns whether the unemployment fell for bad reasons in December and as a result support the USD. • As for the indicators, on Tuesday, in Europe, we have the UK construction PMI for January and Eurozone’s PPI for December. The latter is expected to show a further decline in producer prices, which could add to the downward pressure on EUR ahead of the ECB meeting. From the US we have December factory orders and from New Zealand we get the unemployment rate for Q4. On Wednesday, we get the service-sector PMIs for January from several countries of Europe and the Eurozone as a whole. Eurozone’s retail sales for December are also coming out. In US, the ADP employment change and the ISM non-manufacturing PMI, both for January, are coming out. On Thursday we get December trade data for from Australia and the US. German factory orders for the same month are also coming out. On Friday the UK industrial and manufacturing production for December and German industrial production for the same month will be released. Canada’s unemployment rate for January is also coming out.
Posted on: Mon, 03 Feb 2014 08:15:54 +0000
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