Talking Points
JPY Q4 Capital Spending Figures Likely to Bring Upward Revision to GDP
AUD Inflation Slightly Higher, Services Up on Retail Spending
EUR PMI Takes a Dip on Negative Effects of VAT Hike
USD ISM Manufacturing Only Notable on Ledger
Japanese Yen Eyes 115.00, British Pound Freefalls Towards 1.9200
Asian markets unexpectedly started the week off with a bang, as the Japanese Yen continued soaring to fresh 3-month highs and the British Pound dropped to its lowest since November. Yen traders leveraged a strong Capital Spending report to send the USDJPY crashing below significant support at 116.50, while formidable GBPJPY selling was the main culprit for Sterling weakness. Early Asian action left relatively little follow-up through European hours, but a delayed reaction to bearish European PMI figures has forced the EURUSD to retest significant support at 1.3120.
Japanese CAPEX data was clearly the highlight of pre-US trading, as the bullish fourth quarter figures suggest that the economy grew at a faster pace than previously reported. Already at a robust 4.8 percent annualized pace, revised consensus estimates show that final figures will likely come in at or above the 5.0 percent mark?the countrys fastest growth since Q1, 2004. This only accelerated JPY-short covering and leaves further risks of appreciation for the Japanese currency. Looking at last weeks IMM Commitment of Traders Report, Yen shorts remained near record-highs prior to Thursdays astounding JPY rally. A battery of margin calls on such positions is likely to trigger further liquidation of carry trades. This could only lead to further drops in other high-flying asset classes, as futures traders scramble to cover losses with their most profitable holdings. One only has to look to gold prices for proof, as they have inexplicably dropped over 6 percent despite a pronounced flight to safety throughout global markets.
Euro zone developments were comparatively tame through the early morning, but soft regional PMI figures dented outlook for the European services industry. Composite PMI unexpectedly dropped to 57.5?led lower by a 1.1 point decline in the German index. Domestic purchasing managers clearly showed their displeasure with the recent Value Added Tax increase and lowered forecasts on future profitability. Traders subsequently showed their disappointment by sending European currencies even further off of their highs, with the EURUSD just 9 points above the crucial 1.3120 mark at time of writing.
Remaining economic data will be limited to the US ISM Services survey and Canadian Ivey PMI figures. Given current levels of volatility across asset classes, it should hardly be a surprise to see further reactions off of either figure. Traders will likely pay special attention to the Employment Index of the ISM Services report?typically an accurate predictor of subsequent Non-Farm Payrolls employment
