Market sentiment improved markedly overnight due to successful bond auctions in Europe. Italy successfully sold EUR 12 billion of Treasury bills at significantly lower yields than at the previous auction while demand for Spanish debt was higher than expected prompting Spanish two year note yields to fall below 3% for the first time since April 2011. The optimism in Europe was tempered by disappointing US economic data which showed that retail sales only rose by 0.1% in December against expectations of a 0.3% rise and jobless claims rose more than expected by 24,000 to 399,000 in the week ending January 7. The Bank of England left policy unchanged and the GBP remains just above 1.5300.
ECB President Mario Draghi pointed to the falling yields at recent bond auctions as evidence that the ECB's strategy for dealing with the European debt crisis is beginning to show results. He said that the massive cash injections in the financial system is beginning to loosen up credit markets and that there were signs of economic stabilisation in the eurozone. He did not focus on the fact the ECB's balance sheet continues to grow as banks park more mon-ey with the central bank rather than lend it out. The ECB left rates unchanged at 1% and this, in combination with Draghi's comments, propelled the EUR higher by more than a cent to 1.2846. The Australian dollar traded as high as 1.000 before falling from resistance to open up this morning at 1.0330.
Equity markets were largely lacklustre with positive news out of Europe offsetting disappointing US economic data releases. In Europe, the positive bond auction results and comments from ECB President Draghi failed to elicit much of a reaction from markets. The DAX closed 0.44% higher at 6,179 while the FTSE lost 0.15% to 5,662. The S&P 500 has closed the session 0.23% higher at 1,295. Alcoa and Caterpillar rose more than 2% while energy shares declined the most as oil fell quickly below $100.00. Today in the European and US sessions we have the release of tUK PPI, Canadian and American Trade balance figures and US Consumer Sentiment data.
Commodity prices eased yesterday after the recent run of strong rises. WTI crude fell more than 2% to $98.80 after an announcement that a planned EU embargo of Iranian oil imports might be delayed for 6 months. Precious metals continued to consolidate with gold higher by 0.48% to $1,647 while silver is trading above $30.00 up 0.43%. Soft commodities saw significant losses with corn and wheat falling by more than 5%. Copper bucked the trend by rising 2.7%. The CRB index lost 3.75 points to close at 309.86.opportunity
AUD/USD jumped sharply during the European morning as the risk sentiment increased on the back of the positive bond auctions and the no change in interest rates by both the BoE and ECB. Once the 1.0315 level broke a stop hunt took the price to the top of our expected range highs 1.0378 before quickly reversing as US data was much weaker than expected and took the shine of the commodity currencies bounce. NZD failed to see the same gains as the AUD during Europe and this had to be a factor in the pullback. The AUD price fell back to the daily lows 1.0290 before the slow afternoon saw the price slowly recover to finish well bid at 1.0336. With it being Friday the 13th and a lack of data the Asia session could produce anything. However, we favour a slow Asia session before a larger move during the European morning. Bottom pickers should be tested during the European morning in Sterling and Euro, which could lead to a heavy AUD. Also we have changed the short term bias as reported in Thursday’s report with the price getting into the 1.0350/80 bracket overnight!
Compass Direction
- Short-Term: BEARISH
- Medium-Term: BEARISH
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