Market Drivers for March 4, 2013
Aussie hits fresh 2013 lows
Cable PMI Construction sinks to lowest level since 2009
Nikkei 40% Europe -23%
Oil $90.40/bbl
Gold $1577/oz.

Europe and Asia:
AUD Building Approvals -2.4% vs. 2.8%
EUR Euro-zone Sentix Investor Confidence -10.6 vs. 4.5
EUR Euro-zone PPI n/a
GBP PMI Construction 46.8 vs. 49.2

North America:

A down opening for most major currencies at the start of the trading week as a swoon in the Chinese equities and a smattering of weaker than expected economic data has put pressure on risk once again. The Aussie fell to fresh year to date lows in Asian trade hitting 1.0114 before rebounding slightly in Europe. The pair was heavy from the open as weak Chinese stock and a miss in Building Approvals revived concerns about the economy Down Under.

Chinese stocks fell hard in the wake of new curbs on real estate lending. The CSI 300, representing the nation’s biggest companies in the Shanghai and Shenzhen stock exchanges, fell 4.6 percent to 2,545.72 at the close, the most since November 2010, while the Shanghai Composite Index slid 3.7 percent to 2,273.40, the most since August 2011. The drop unnerved investors in Australia which is very sensitive to any possible downdraft from China.

Meanwhile Australian economic data offered little solace to the bulls as the Building Approvals dropped to -2.4% from 2.8% eyed indicating that the housing market is starting to weaken as overall demand remains tepid. Tomorrow all eyes will be on the RBA as the central bank will issue its statement after it monthly meeting. The RBA has been relatively sanguine about the state of the Australian economy signaling that it believes the current policy is enough to stimulate the demand Down Under. The market does not expect any rate cuts tomorrow but a change in language that would acknowledge the recent weakness could push Aussie through the 1.0100 barrier with currency traders assuming that the central bank is laying the groundwork for a rate cut next month.

In UK the data continues to signal a deepening recession as the PMI Construction, much like the PMI Manufacturing report last week missed its mark printing at 46.8 versus 49.2. This was the lowest reading since October 2009 destroying any expectations of a rebound in the housing sector.

Cable touched the psychologically key 1.5000 figure once again, but quickly rebounded off that level as bargain hunters once again swooped in. Tomorrow’s UK PMI Services report looms even larger than usual as it remains the last bastion of hope for the bulls. Services represents more than 70% of UK economic activity and the forecast is for a reading of 51.5. However if the data misses – and worse dips below the 50 boom/bust line then sterling is very likely to give up the 1.5000 level for good.

In the EZ the action was relatively subdued, with little eco data on the docket, but the euro did drift lower, dropping below the 1.3000 level as the night progressed. The situation in Italy remains unresolved with little prospect of a coalition government as Bersani now tries to focus on forming a ruling minority that will likely be very unstable. Italian yields continue to inch higher as investors grow increasingly nervous as Beppe Grillo muses on the possibility of Italy leaving the Eurozone.

With no economic reports from North America risk FX could continue to drift and consolidate for the rest of the day. The Eurogroup and Ecofin meeting tomorrow could produce some market moving rhetoric, but the true market driver remain Italy. The longer the political quagmire lasts the greater the pressure on the euro with the pair looking very vulnerable if it drops below the 1.2950 support level.

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