The USD gained on its higher yielding rivals in overnight trading as there was some disappointment with the Fed’s actions following its rate decision, while Asian shares came under pressure from manufacturing data from China. European data continues to show slower growth, including slowdown in German manufacturing, but Spanish 10-year extending its decline, helping calm European markets.
Overnight Developments
- Fed decides to extend Operation Twist through 2012 ($267 billion).
- Market participants disappointed somewhat that more wasn’t done, but FOMC will be watching jobs.
- Flash reading of China’s HSBC manufacturing index shows contraction for 8th straight month.
- Spain auctions off medium term bills, sells maximum target, decent demand, but pays higher borrowing costs.
- Flash readings for Euro-zone PMI’s show continued contraction, but meet expectations, though manufacturing slowdown steeper in Germany.
FOMC Projections
China Manufacturing
Euro-zone Composite PMI
Euro-zone Manufacturing vs Services PMI’s
Germany Composite PMI
Germany PMI vs Periphery
European Debt Auctions:
- Spain auctions €2.22bn of medium-term bonds, slightly above the planned €2bn maximum.
- The average yield on bonds maturing in 2017 was 6.072 per cent, compared with 4.96 per cent in the previous auction last month.
- Spain also sold 2014 and 2015 bonds at 4.706 per cent and 5.547 per cent respectively.
- France – sold €3.34bn of five-year loans at an average yield of 1.43 per, last month Paris paid an interest rate of 1.72 per cent.
Theme of the Market:
- Some improvement in Europe – especially Spanish yields as market participants expect more intervention from policymakers.
- Market participants will be looking towards clarity from European policymakers about their next steps as they head towards yet another make-or-break EU Summit next week.
- Key leaders (Hollande, Monti, Rajoy, Merkel) will talk in Rome on June 22nd pre-Summit.
- While Fed did not announce more QE, it stands ready to act if conditions worsen.
Nick Nasad is a macro economist, market analyst, and educator; and one of the main contributors to FXTimes.com – provider of News, Analysis, Education, Videos, Charts, and other trading resources.
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.
