FX Market Movers
In Tuesday an announcement by the Chinese authorities that the bank reserve ratio will be raised to drain excess liquidity have spurred fears that maybe the demand picture from china is not as optimistic as it investors have perceived. Investors sold all currencies associated with Chinese growth in a move to curb risk exposure. However those worries have somewhat faded yesterday and enabled stocks and the high yielders such as the Aussie and the Kiwi to adjust earlier losses. The Euro closed modestly higher around 1.4511, the GBP gain around 0.8% just a few points short of 1.63 and the Aussie rose above 92cents.
This Morning’s Headlines
Australian Unemployment out this morning surprised investors substantially for the better falling from 5.7% to 5.5%, signaling the RBA could raise rates once more as soon as February.
Japanese core machinery orders fell -11.3% MoM marking more than a 20% fall YoY strongly disappointing investors and raising concerns over capital spending and the Japanese recovery as a whole.
Commodities
Gold After dipping below 1,120 and being sold heavily the Yellow metal was able to close the day on the positive side as worries over china’s tightening move eased. Gold ended the day with a 10$ gain and closed above 1,138$.
Oil EIA crude oil stocks rose unexpectedly to 3.7M Barrels and caused winter demand pressure to ease. Oil reacted by retreating below the 80$ mark and settling at 77.9$ a barrel.
The Day Ahead
At the open of the Tokyo session sentiment is expected to be rather bullish for the Aussie and the Kiwi after Australian unemployment surprisingly fell to 5.5% .In Europe markets are expected to be rather nervous and cautious ahead of the ECB expected rate decision at 12:45GMT.Investros pulls show the broad consensus expects no change in the key rate(currently at 1%) investors however will be keen to get more clarity from the ECB on the manner and timeline the ECB plans to pull back support of the banking system. Any surprise with respect to the time line of the ECB exit strategy could create strong swings in the Euro exchange rate especially a shorter timeline than consensus expects, which could push the euro to further gains this week. The concluding economic indicators for the day will be the US initial jobless claims figure which is expected to hold steady at the 430K zone and US Retail Sales which is expected to gain less than 0.5%. Any surprise for the worse in both indicators could provide further support for the high yielders.
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