EU Morning Report- Euro jumps as global growth fears ease
The euro rose against a basket of currencies yesterday after figures revealed that global manufacturing activity picked up easing fears about global growth. Manufacturing PMI showed the biggest gain since March 2010. Further supporting the single currency were talks that Greece’s agreement with its private creditors is nearly completed. Portugal’s Prime Minister said that fiscal adjustment is necessary at this point and that the country is expected to return to the markets next year.
Eurozone Consumer Price Index was also released yesterday and remained unchanged and in line with expectations at 2.7%. Focus turns to the Spanish and French bond auction and the eurozone PPI figures.
The US dollar weakened yesterday against its major counterparts as risk sentiment recovered in the markets. Against the Japanese yen, the greenback is trading near a three month low at 76.02 while investors are concerned that the Bank of Japan may step in the currency markets to stop the yen from rising. A strong yen poses a threat to the Japanese economy as it hurts the country’s exports.
Focus turns to Bernanke’s testimony on the state of the US economy and what is interesting to watch is any comment on the monetary policy and the prospect of a third round of quantitative easing. Versus the Swiss franc, the dollar plummeted to 0.9114 from 0.9249. Initial Jobless Claims are also due today ahead of tomorrow’s Non Farm Payrolls report.
The Australian dollar climbed to a five month high against the greenback after data revealed that Australia’s trade surplus increased more than expected. The pair rose to 1.0756 from 1.0569.
Oil prices fell sharply to 96.70 dollars a barrel from 99.44, a decline of 2.8%. Gold edged higher to 1751.81 dollars an ounce from 1732.68. Silver also edged higher to 33.98 dollars an ounce from 33.07.
The Swedish OMX paved the way for yesterday’s index gains, rising 2.79%, followed closely by the Italian MIB which rose 2.76% as equities climbed higher. Other outperformers included the German DAX and Euro Stoxx 50, each up over 2% in trading. Reports of a rumored deal reached between the Greek Government and creditors was enough to boost markets higher even though the terms have yet to be announced and agreed upon. The ECB, which has approximate exposure of “36 to “55 billion to Greek debt, has not alerted the market on its own plans for the debt swap in light of the proposed haircut and bond exchange. Portuguese debt remains a weak spot, and although yields have improved over the last two sessions, Portugal is selling assets to decrease the deficit. EURUSD has made a strong recovery since the rumored Greek compromise, rising over 100 pips off of yesterday’s low to trade at 1.3185.
Asian stocks continue to move higher off the back of the alleged Greek bond swap deal. The Hang Seng is today’s leader, rising 1.37%. The Australian ASX and Nikkei are also moving higher, up 1.05% and 0.79% respectively. Stocks on the Tokyo exchange were closed earlier after a glitch, but have since reopened for trading. Rhetoric from the Bank of Japan continues to sharpen as the Yen appreciates and rapidly approaches the level of the previous currency intervention, trading at 76.150 versus the dollar. The Aussie-dollar is also considerably stronger, climbing to a 5-month high against the dollar of 1.0727. Asian currencies continue to appreciate as stronger Chinese and American manufacturing data improves risk appetite amongst investors.
U.S. equity markets snapped a losing streak as financial companies led indices higher. The news that dominated markets yesterday was details of the proposed $5 billion Facebook IPO led. The Nasdaq rose 1.22%, trailed closely by a 0.89% increase in the S&P 500 and a 0.66% rise for the Dow Jones.
The dollar index (DXY) continues to slide, falling below 79 to 78.791 as improved manufacturing data continues to benefit risk-sentiment. Yesterday’s ADP employment report illustrates that employment continues to expand, but a downward revision of last month’s figures indicates a slower pace than forecast. Manufacturing also rose slightly and construction spending is increasing faster than forecast by the Commerce Department. Energy commodities continue to slump as crude oil falls to $97.52 and natural gas slides to $2.39/MMbtu.