[B]Talking Points
• Japanese Yen: Spikes to 107 on early Nikkei strength but trades down to 106 by Europe open
• Euro: Holds 1.4600 as PMI data steady and French consumer spending robust
• British Pound: GDP better MPC minutes provide no clue to a cut
• US Dollar: Only MBA Mortgage on tap[/B]
After several days of massive volatility global equity markets stabilized in early European trade, although Asia’s powerful recovery did not follow through to the Footsie and the Dax both of which traded slightly lower. In the currency market carry trades found some footing aided by generally positive data from most of the high yield pairs.
In Australia today the CPI data printed hotter than expected with trimmed mean coming in at 1.0% versus 0.9% forecast. Taken together with the buoyant Westpac LEI numbers, which rose for sixth month in a row, the data suggests that RBA may choose to raise rates another 25bp at its February meeting. However, given the global backdrop of monetary easing amongst many of the G-10 members, its unlikely that the RBA would make such a hawkish gesture at this time. Nevertheless, Australia remains one of the few G-10 members whose fundamentals do not require any rate cuts and as such the Aussie is likely to outperform its peers if risk appetite returns to the market.
In EZ, French consumer spending rose markedly more than forecast primarily on a spike in auto sales, while both Manufacturing and Services PMI flash readings remained above the key 50 boom/bust level. So far the news suggests that EZ is not experiencing the same economic slowdown as US and that fact should stifle any speculation of an ECB rate cut in response to Fed’s actions yesterday.
Finally, UK GDP printed at 0.6% vs. 0.5% forecast while the MPC minutes came in as expected with 8-1 hold vote. The statement was fairly balanced indicating that a 25bp rate cut in February – expected by the majority of analysts – may not be a foregone conclusion. Cable has managed to find support at 1.9450 and if the FX market sees no further carry trade unwinds may rally as the day progresses. With no major economic data on the calendar, price action in North American session is likely to be driven by equity flows. Presently stock index futures are called lower and if US equities resume their sharp decline, so will most of the majors irrespective of today’s relatively robust economic numbers from across the pond.
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