Market Drivers February 5, 2018
USDJPY below 110.00
UK PMI Services misses
Nikkei -2.55% Dax -0.54%
Europe and Asia:
EUR PMI 58.8 vs. 58.6
GBP UK PMI Services 53.0 vs. 54.3
USD ISM Non-Manufactuting 10:00
The dollar remained in the dumps on the first trading day of the week, as risk aversion flows sent USDJPY below the 110.00 figure in early Asian trade where it remained for most of the European dealing.
US yields continue to rise with 10 year now at 2.85% but the gains are having no impact on USDJPY which is being dominated by risk aversion flows. The rise in US bond yields has now spooked equity investors who fear that bonds will be a stronger competition for stocks and may dampen growth as credit costs rise.
Meanwhile in Europe negotiations continued for a majority rule between Merkel and SPD and it appears that progress in being made, The news kept euro propped above the 1.2450 level and if anti-dollar flows continue the pair could make a run at the 1,2500 level as the day proceeds.
In UK cable was up slightly, but much of the early morning rally was dissipated by the disappointing PMI Services report which printed at 53.0 versus 54.3 eyed. This was the lowest reading in 16 months and shows that UK economy is slowing across the board.
According to Chris Williamson, Markit economist, ”While the fourth quarter PMI readings were historically consistent with the economy growing at a resilient quarterly rate of 0.4-0.5%, in line with the recent GDP estimate, the January number signals a growth rate of just under 0.3%.”
This suggests that BOE will remain resolutely dovish at this Thursday’s BOE meeting and will, therefore, pressure cable lower. We continue to believe that cable will be the weakest of all the majors against the dollar and could retest the key 1.4000 support level within a few days.
In North America meanwhile, the market will get a look at the ISM Non-Manufacturing report. But given the fact that it is being released after the NFPs, its impact will likely be minimal. The market is looking for a print of 56 from 56,5 the month prior, but if the data prints 55 or lower it could exacerbate the slide in USDJPY and push the pair towards 109.50 support as the day progresses.