Market Drivers May 23, 2018
Risk off flows dominate
UK, EZ data miss
Nikkei -1.18% Dax – 1.44%
Europe and Asia:
EUR EZ PMI Svs. 53.9 vs. 54.7
GBP UK CPI 2.1% vs. 2.2%
USD FOMC Minutes 14:00
Waves of risk aversion caroused through the currency market today sending euro and cable lower while USDJPY plunged to low of 109.67 in morning London dealing.
Both Nikkei and Dax were off by more than 1% following the selloff in late North American trade yesterday which was exacerbated by very weak economic readings in EZ. Eurozone flash PMI readings both missed their mark with services coming in at 53.9 versus 54.6 and manufacturing at 55.5 versus 56.0 eyed. Both measures remain solidly above the 50 boom/bust line, but this the fifth consecutive month of lower readings and the lowest reading in 15 months showing that growth in the region has stalled and shows no signs of stabilizing.
The news has to be a concern to ECB which is trying to normalize policy and begin a taper of QE. Eurozone money market funds are pricing in only a 60% of any type of rate hike by June of 2019 – a full year from now. The news drove EURUSD down to fresh 6 month lows with the pair just tripping stops at the 1.1700 figure before bouncing in morning London trade. Although the pair is grossly oversold, today’s news offers no solace to euro bulls and the pair could probe the 1.1700 figure once again as the day proceeds.
Meanwhile, in the UK the inflation data came in cooler than expected with core CPI dipping to 2.1% from 2.2% eyed as it moved ever closer to BoE’s target of 2%. The news sent sterling to 1.3350 as odds of any BoE rate hike in August decreased from 66% to under 50%. With inflation falling and growth anemic the MPC has little reason to hike rates despite its desire to normalize policy and cable like euro remains under pressure as a result.
In North America the calendar is quiet with only FOMC minutes due at 1600 GMT. The minutes are likely to reaffirm Fed’s hawkish stance but USDJPY could see very lift from than news as risk off flow appears to dominate trade today. With equities lower and 10-year yield back towards the key 3% mark USDJPY have been in a one-way selloff all night long and if the flows persist it could test support at 109.00 especially is selling in equities accelerates as the day goes on.