Risk aversion hits markets. Yen strengthens on geopolitical tensions and China
- Australia AIG services Index 46.3 v. 48.2 previously
- China Caixin services PMI 50.2 vs. 52.3
- Spain services PMI 55.1 vs. 56.9
- Italy services PMI 55.3 vs. 53.8
- France final services PMI 49.8 vs. 50.0
- Germany final services PMI 56.0 vs. 55.4
- Eurozone final services PMI 54.2 vs. 53.9
- UK services PMI 55.5 vs. 55.6
- Eurozone PPI -0.20% vs. -0.20%
- US ADP nonfarm payrolls 257k vs. 198k
- Canada trade balance -1.99bn vs. -2.60bn
- US trade balance -42.4bn vs. -44.0bn
Coming up
- US Final services PMI
- US ISM non-manufacturing PMI
- US Factory orders
- Crude Oil inventories report
- FOMC meeting minutes
Equity markets continued to come under pressure with risk aversion in the markets taking precedence, this time on weak China services PMI data and ongoing developments from Asia, where North Korea announced a ‘successful’ test of a hydrogen bomb. The news comes just a few days after the crisis between Iran and Saudi Arabia. Gold prices continued to trade elevated on the uncertainty as the commodity gained 0.76% at the time of writing, testing intraday highs to $1088.80 before pulling back lower.
The Asian trading session was marked by the Australia AIG services index which fell to 46.3, down from 48.2 previously. The AUDUSD, which started it descent few days ago continued to turn weak losing -1.21% for the day in a steady and continued decline since the open. The NZDUSD, on the other hand, was down -0.94% for the day, trading at 0.664 at the time of writing. Both the commodity risk currencies were under pressure as uncertainty mounts from China. Latest economic reports showed the Chinese services PMI declining to 50.2, against expectations of 52.3. There was also mounting concerns that China could soon give up the peg to the US Dollar while it attempts to control the selloff in the equity markets.
The Japanese Yen continued to find favor among buyers as USDJPY lost -0.54% for the day, trading at 118.42 at the time of writing The Yen was trading strongly across the board.
The European trading session kicked off with services PMI data. The Eurozone services PMI was softly higher at 54.2 while the producer prices index fell -0.20% as expected. The decline in PPI along with weak inflation numbers released yesterday is likely to see the markets build up an expectation for the ECB to expand its QE program. EURUSD was rather flat in comparison, losing -0.05% at the time of writing, but the single currency was trading near yesterday’s lows of 1.071.
The British Pound also continued it descent, losing -0.27% for the day after GBPUSD tested lows of 1.46 briefly before pulling back. Services PMI data from the UK released earlier today showed a soft increase to 55.5, but missing estimates of 55.6.
[Tweet “The British Pound also continued it descent, losing -0.27% after GBPUSD tested lows of 1.46”]
The NY session kicked off with the December ADP jobs report which showed a strong 257k private jobs being added to the US economy, against expectations of 198k. However, the markets did not react much to the news as previous month’s job numbers were revised lower from 217k to 211k. Trade balance numbers for Canada showed the decline in the trade deficit to -1.99 billion against estimates of -2.60bn while US trade deficit declined to -42.4 billion against estimates of -44 billion. The better than expected trade deficit data managed to put temporary pressure on USDCAD which is currently up 0.50% at the time of writing.
The remainder of the evening will see some important data coming out from the US in the likes of services PMI and ISM non-manufacturing PMI and factory orders. The main event, however, will be the meeting minutes from the Fed’s December meeting where the decision to hike rates by 25bps was taken. Markets will be looking to the tone of the meeting in a bid to understand the pace of the rate hikes for the coming year. Expect market volatility to continue into the meeting minutes release.
