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20 Feb 2014
Upswing in risk sentiment after US PMIs redeem recent pessimism
FXStreet (London) - We’ve seen a see-sawing of risk sentiment through the day. Risk aversion started the day leading on from yesterday’s dovish forecast for the rate of US economic growth in the FOMC minutes, followed by weaker-than-expected Chinese economic indicators. However, the huge jump in US PMIs helped to dispel some US pessimism.
Higher threshold for Fed to ease off the brakes
The FOMC minutes from the 28-29 January meeting indicated that some voting members saw a likely slowdown of recovery into the second half of 2014, with growth dragged by inventory accumulation and exports. As a result they: “did not expect the pace of economic growth to be sustained”.
But while there are some hoping that the Fed will ease off on its current schedule of monthly tapering of the Fed’s current USD85bn of assets, minutes showed that “in the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor of continuing to reduce the pace of purchases by a total of $10bn at each FOMC meeting.”
The minutes indicated that the FOMC has a higher threshold below which it will consider slowing the pace of tapering. Recent weak jobs numbers had increased bets that the Fed might slow its cuts, giving some support to risk. However, the minutes showed that the Fed had largely written off the below-expectation numbers as possibly affected by the below-normal US weather conditions.
PMIs at odds with US jobs numbers
However, the weather justification may have been debunked by today’s US PMI numbers, which smashed expectations, US Markit manufacturing flash PMIs came in at 56.7 versus the 53.0 consensus expectation. The jump from 53.7 in January was the biggest on record. According to the Markit survey, The upturn in the headline figure was driven by sharp and accelerated increases in both production levels and incoming new work during February.
In addition, new business volumes increased at the sharpest rate since May 2010, suggesting resilient underlying demand across the U.S. manufacturing sector.
USD/JPY
USD/JPY has been the big mover on the session. It rallied into JPY strength on haven demand, despite Japan’s increasing trade deficit, overshooting even pessimistic expectations overnight to -JPY2,790.0bn. It rallied from a session low of JPY101.6975 to JPY102.4050. However, the US PMI numbers helped to knock the legs out from under it, currently down to JPY102.1550.
AUD/JPY
AUD/JPY remains subdued. Perhaps the most sensitive pair to global risk sentiment, it dropped like a stone on the weak Chinese PMIs, but has ground up slowly through the day, currently at JPY91.68 after a low of JPY91.0774.
Gold
Gold has been give broad support through the day on Chinese and US growth concerns. However, the US PMIs reversed much of the days gains, currently trading at USD1,312.32/oz.
Higher threshold for Fed to ease off the brakes
The FOMC minutes from the 28-29 January meeting indicated that some voting members saw a likely slowdown of recovery into the second half of 2014, with growth dragged by inventory accumulation and exports. As a result they: “did not expect the pace of economic growth to be sustained”.
But while there are some hoping that the Fed will ease off on its current schedule of monthly tapering of the Fed’s current USD85bn of assets, minutes showed that “in the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor of continuing to reduce the pace of purchases by a total of $10bn at each FOMC meeting.”
The minutes indicated that the FOMC has a higher threshold below which it will consider slowing the pace of tapering. Recent weak jobs numbers had increased bets that the Fed might slow its cuts, giving some support to risk. However, the minutes showed that the Fed had largely written off the below-expectation numbers as possibly affected by the below-normal US weather conditions.
PMIs at odds with US jobs numbers
However, the weather justification may have been debunked by today’s US PMI numbers, which smashed expectations, US Markit manufacturing flash PMIs came in at 56.7 versus the 53.0 consensus expectation. The jump from 53.7 in January was the biggest on record. According to the Markit survey, The upturn in the headline figure was driven by sharp and accelerated increases in both production levels and incoming new work during February.
In addition, new business volumes increased at the sharpest rate since May 2010, suggesting resilient underlying demand across the U.S. manufacturing sector.
USD/JPY
USD/JPY has been the big mover on the session. It rallied into JPY strength on haven demand, despite Japan’s increasing trade deficit, overshooting even pessimistic expectations overnight to -JPY2,790.0bn. It rallied from a session low of JPY101.6975 to JPY102.4050. However, the US PMI numbers helped to knock the legs out from under it, currently down to JPY102.1550.
AUD/JPY
AUD/JPY remains subdued. Perhaps the most sensitive pair to global risk sentiment, it dropped like a stone on the weak Chinese PMIs, but has ground up slowly through the day, currently at JPY91.68 after a low of JPY91.0774.
Gold
Gold has been give broad support through the day on Chinese and US growth concerns. However, the US PMIs reversed much of the days gains, currently trading at USD1,312.32/oz.