Aussie Flips, Euro Dips, All Eyes on Mario

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Market Drivers January 24, 2019
EZ PMI flash danger
NAB raises mortgage rates flips Aussie
Nikkei -0.09% Dax 0.23%
Oil $52/bbl
Gold $1278/oz.

Europe and Asia:
AUD AU Employment 21.6K vs. 16.5K

North America:
EUR ECB Presser 8:30

Euro took a hit in early European trade today after Flash PMI readings revealed that the EZ economy recorded it’s weakest growth readings since 2013.

The EZ Composite PMI printed at 50.7 versus 51.4 eyed coming within a whisker of the 50 boom/bust level as the upheaval in France and the lingering trade tensions between US and China have clearly taken their toll on the region.

French Services PMI readings came in at 47.5 – their worst readings since 2014 – as the impact of the countrywide protests by gilets jaunes dampened demand across the sector. It remains to be seen if the situation will improve now that the demonstrations have ceased but for now the data has done little to alleviate fears that the whole region is teetering on the edge of recession.

At today’s ECB meeting Mario Draghi will no doubt try to spin the disappointing numbers as one-off effects coming from unrest in France but with euro-wide numbers showing a broad slow down its hard to see how the ECB could continue the policy of normalization as demand contracts rapidly. The EURUSD has held remarkably well given the string of negative news but if Mr. Draghi offers a more cautious picture of growth in 2019 the pair could take out 1.1300 support as the day proceeds and aim for recent swing lows near the 1.1200 figure.

Elsewhere, the Aussie flipped on traders after the positive labor data release was offset by news that NAB – one Australia’s four big banks – is raising interest rates which would make mortgages more expensive and further depress the already slumping housing market.

The Australian jobs report came in at 21.6K versus 16.5K eyed. Although this was another solid jobs report, wages growth is likely to be muted which in turn should keep CPI data contained and RBA firmly in neutral mode for now. All the more reason why the hike in home loan rates reverberated so negatively in the market today with Aussie slipping below the .7100 mark as traders fear that a combination of rising rates and slowing housing demand could ultimately force the RBA to ease further and drive the pair below the key .7000 figure once again.

Boris Schlossberg
Managing Director

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