US manufacturing, jobs and housing data painted a mixed picture of the US economy yesterday. The increase in home prices appears to be slowing, but jobless claims and existing home sales continue to show improvement.
From a global perspective, manufacturing confidence remained firm, largely reflecting strength in the euro area. Although European equity markets have largely followed the global risk sentiment lower, the relatively better news out of the euro area did boost the EUR, as well as currencies of countries that are closer linked from a growth perspective (such as the GBP, CHF, NOK,SEK and PLN). This leaves GBP slightly off its recent peak versus EUR but still comparatively strong at 1.2150+
Any EUR strength on the back of positive data is likely to be fleeting as the ECB steps up its disinflation fighting efforts. Looking at the coming months the markets are looking for the ECB to introduce further growth ‘inspiring’ policy - perhaps negative interest rates.
On a light data day ahead, the only release of note will be Canada’s CPI. A downside surprise is likely to reinforce the Bank of Canada’s concerns about inflation and keep the CAD under pressure. Also, BoE Governor Carney and ECB President Draghi are scheduled to speak in Davos today. Mr Carney’s speech will be interesting in light of his earlier televised interview, in which he suggested the BoE is set to re-orient its forward guidance.
Finally AUD continues to weaken, with GBP/AUD now at 1.9100 (a 4.5 year high and a an incredible 24% in one year). This has largely been caused by anticipation of further rate cuts to combat low growth in the economy - however inflation continues to rise which leaves the RBA in a bind and means interest rate cuts are not a given.
Posted in Daily Market News on May 30 2014