Cross Market Check from Tuesday’s Session:
Equities – For Tuesday’s global session, stocks in Europe traded down most of the day buy pared losses and closed mainly flat. In the US, stocks that were higher during most of the day pared their gains to end flat. In Europe attention again focused on sovereign debt concerns – as Portugal was downgraded yet again by Moody’s. In the US, a poor ISM non-manufacturing report weakened the USD – and kept a lid on equity gains.
Commodities – Gold hit a new record high as tensions in the Middle East, concerns about a showdown in Washington DC over the US budget that could cause a government shutdown, and lingering issues about Europe’s sovereign debt crisis pushed more investors to seek the safety of gold. Silver also had impressive run. Light crude oil prices remained above the $108 a barrel level.
Bonds – US Treasury prices fell, pushing 10-year yields up for the first day in five. The 10-year yielded 3.49%.
Major Stories from Tuesday:
1. China Raises Interest Rates – In a surprise to markets, China’s central bank raised rates. It was a surprise in that the timing was unknown, but in general the preference for another rate hike by the central bank was widely known. While the AUD retreated following the announcement, the effects on currencies was short lived. The question remains how much more tightening is needed from the People’s Bank of China (PBOC) are have they now “front-loaded” their rate increases to an extend which will cool inflation?
For more on this story: China Hikes Rates Another 25 Basis Points, Can it Usher in Some Risk Aversion?
2. Portugal Downgrade – Portugal’s yields continue to blow out to euro-era highs, putting further strain on the country’s and the country’s banks financing needs. Moody’s dealt a sharp blow in its second downgrade of Portugal’s credit rating in 3 weeks, saying that the country will need to get bailed out.
For more on this story: Portugal Yields Continue to Deteriorate, Will the Country Need Rescue Before June?
3. UK and US Services Sector Data – What was a positive for the UK, with services activity coming in stronger than expected – helping to send the GBP higher – was a weakness for the US where its ISM non-Manufacturing Index failed to meet expectations, dulling any gains for the USD from overnight.
For more on the story: GBP Surges on UK Services PMI, Is UK Economy Stronger than Expected?
Key Fundamental Events Tomorrow:
Switzerland (CHF)
3:15 AM ET (7:15 GMT):
CPI m/m (Mar): forecast 0.2%, pr. 0.4%
Prior to the February reading of 0.4%, consumer prices were down 0.4% in January, and flat on the month in December. The jump in inflation in February is expected to be tempered by the March reading which is expected a 0.2% climb.
The SNB sees inflation steady in its quarterly outlook. But, that “towards the end of the forecast horizon, inflation rises briskly and exceeds the upper bound of 2%”. The SNB saw recent appreciation as a result of the tensions in the Middle East, and while a stronger Swiss franc had a “moderate” impact on import prices, exports have lost “considerable momentum.”
UK (GBP)
3:00 AM ET (7:00 GMT):
Halifax HPI m/m (Mar): forecast 0.2%, pr. -0.9%
HPI y/y: forecast -2.8%, pr. -2.8%
Housing prices from the Halifax Bank of Scotland are expected to show an uptick in March, following the poor reading we saw in February, though the annual pace of housing prices looks set to remain at -2.8%.
Manufacturing Production m/m (Feb): forecast 0.2%, pr. 0.4%
Industrial Production m/m (Feb): forecast 0.4%, pr. 0.5%
The UK economy got a shot in the arm from the March Services PMI, which showed that important sector surging (hitting 57.1 from 52.6 in Feb) ahead in activity. We already have March’s Manufacturing PMI and it disappointed. From a downwardly revised 60.9 in February, the manufacturing index fell to 57.1. That was lower than forecasts of a 60.7 reading, showing slowdown in the pace of activity.
Manufacturing output is expected to rise 0.2% for the February period, following a 0.4% increase in January. If this figure undershoot expectations it could again turn the attention on the UK’s economy. While the services PMI report proved exceptional, is the UK economy really stronger than expected? Even though we already have newer manufacturing info on hand, we can use this upcoming data to clarify how the sector progressed through the 1Q.
Euro-zone & Germany (EUR)
5 AM ET (9:00 GMT):
GDP q/q (4Q final): forecast 0.3%. pr. 0.3% (4Q – 2nd release)
The 3rd release of Euro-zone 4th quarter GDP is not expected to contain any thrills and should closely match the 2nd reading. Don’t expect too much market moving potential for this release.
6AM ET (10:00 GMT):
German Factory Orders m/m (Feb), forecast 0.6%, pr. 2.9% (Jan)
Factory orders are a good leading indicator for manufacturing and the overall economy. In Germany, expectations are for a gain of 0.6% for the month of February, slower than the sharp 2.9% increase we saw in January. Factory orders have been a bit volatile of late, so this report can come in better or worse than expected, and could have some marginal impact on the Euro ahead of the ECB interest rate decision.
The ECB is mainly acting against inflationary pressure from a Germany economy that is posting strong gains. It’s partly to keep that economy in check that ECB needs to tighten. A stronger factory orders report is one of our leading indicators for Germany’s economy.
Nick Nasad
Chief Market Analyst
FXTimes
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.
