Market Summary
Market sentiment is mixed today: positive news of an acceleration in China’s economic growth was somewhat offset by fears that the strong data will prompt Chinese authorities to tighten monetary policy. The dollar remains stronger overall however, perhaps another indication that the underlying sentiment on the US economy and currency has been shifting over the past few weeks. The yen is lower today, also in our view a sign that prospects for further global monetary tightening and rising interest rates will be a negative for the Japanese currency, which should remain plagued by a deflationary environment and near-zero policy rates for the foreseeable future. Meanwhile, the euro is the currency the market currently loves to hate, and it appears that concerns over the fiscal troubles in Greece and other fiscally weaker Eurozone members are not likely to go away any time soon. We remain bearish on both the euro and the yen this year and continue to see bounces in both currencies as a selling or hedging opportunity to protect against future weakness.
Regional Highlights
Asia/Pacific
News from China is dominating the regional economic calendar today. Q4 GDP growth accelerated to 10.7% q/q, the fastest pace since 2007. Meanwhile, consumer prices rose by 1.9% y/y in December and industrial production for the same month advanced by 18.5% y/y. Market reaction to the data has been mixed however given rising concern that strong growth may prompt the Chinese authorities to move further on the path of monetary policy tightening. Equity markets are slightly positive, the Japanese yen is lower, while the Australian dollar is little changed. The New Zealand dollar is down however, even despite some positive domestic economic news as November retail sales rose by a firm 0.8% m/m both at the headline and the core rates. Emerging Asian currencies are mixed: the ringgit is lower, while the rupiah is slightly higher today.
Europe
The euro has extended its recent losses, touching the lowest level against the dollar since late July. Budget troubles in Greece remain toxic for global investor sentiment, reflected in the further widening of the yield spread between Greek debt and German bunds. An earlier press report that the EU was preparing an emergency loan for Greece were later denied by the Greek finance minister Papaconstantinou. On the data front, the ‘flash’ estimates of the Eurozone January PMI painted a mixed picture, and did little to help the euro. The manufacturing PMI rose to 52, while the services PMI fell to 52.3, dragged down by the fall in the component indices for France and Germany. The British pound is also lower despite an unexpected fall in public sector borrowing to 15.7B pounds in November. The Scandinavian currencies are steady, while Eastern European currencies are mixed today.
Americas
The US initial jobless claims unexpectedly rose by 36,000 to 482,000, the highest level in two months, although the Labor Department stated that “administrative” factors have impacted the latest numbers. Later today, the Philadelphia Fed survey is seen easing to 18 in January, while the leading indicators for December should print a 0.7% m/m gain. In Canada, November wholesale sales exceeded expectations with a 2.5% m/m jump, while later today the Bank of Canada will be releasing its Monetary Policy Report. Elsewhere in the region, the Mexican peso is a touch stronger, while the Chilean peso is losing ground.
