Market Drivers March 2, 2015

UK PMI Manufacturing highest since July
AUD pressured as rate cit expectations swirl
Nikkei 0.15% Europe 0.13%
Oil $49/bbl
Gold $1215/oz.

Europe and Asia:
CNY HSBC Final PMI Man. 50.7 vs. 50.1
GBP UK PMI Manufacturing 54.1 vs. 53.5
EUR EZ CPIs Flash -0.3% vs. -0.5%
EUR Unemployment 11.2% vs. 11.4%

North America:
USD Core PCE 08:30

USD ISM Manufacturong 10:00

After a wobbly start in early Asian dealing, both euro and cable found a bid in morning European trade as economic from the the region proved to me more upbeat than the initial forecast. Euro dropped to a low of 1.1160 on the open of Asian trade, but managed to stabilize and rise steadily for the rest of the day recapturing the 1.1200 figure by mid-morning London session.

The pair was helped by better than expected flash CPI readings which printed at -0.3% vs. -0.5% expected and a decline in unemployment reading to 11.2% vs. 11.4% eyed. The news is just the latest data point to suggest that EZ economy is stabilizing and as deflationary pressures may have bottomed.

This week the focus in the EZ will turn to ECB meeting on Thursday with markets eager to hear Mr. Draghi’s plans for QE as well as any ECB actions vis a vis Greece. If Mr. Draghi does not suggest any further expansion of the proposed QE program the euro may actually rally on relief as it appears to oversold on a short term basis.

Meanwhile in UK the PMI manufacturing report printed at 54.1 versus 53.5 – its best reading since July as new orders and consumption goods soared. Analysts however were quick to point out that the demand for plant and machinery equipment continued to stall as business investment remained soft. Nevertheless, this was an overall positive report that suggests output is now running at 0.5% q/q rate versus 0.2% in Q4 of 2014.

Cable rose through the 1.5400 level but remained capped at 1.5430 for the time being. The pair has found resistance the at 1.5500 level last week but if this week’s slew of PMI reports shows better than expected results, sterling rally could resume in earnest as speculation will grow that BoE will be “second to hike” in G-7 this year.

The one unit that remained weak against the buck was the Aussie which fell through the .7800 level despite news over the weekend that PBOC cut benchmark rates by 25bp and HSBC Final Manufacturing PMI came in better than forecast. The market remains convinced that the RBA will cut rates further at tomorrow’s monthly meeting and that it may hint at additional easing later in the year. The RBA is adamant at moving the exchange rate towards the .7500 figure and if it maintains a dovish posture tomorrow the Aussie could see more selling as the week progresses.

In North America today the market will get a look at the ISM Manufacturing data which is forecast to slip to 53.4 from 53.5 the month prior. There is a good chance that the number could miss as very cold weather wreaked havoc on Northeastern and Midwestern US in February, but the markets may look through the data as a one off event. Of more interest to currency traders will be the Personal Spending and Personal income figures as well as the core PCE index. With wages finally starting to show some growth an uptick in PS/PI data would only add to the thesis that deflation has been vanquished in the US economy and put further pressure on the Fed to begin tightening by June rather than September.

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