(24 January 2020)DAILY MARKET BRIEF 1:European equities to reverse losses, as attention moves to January PMI

(24 January 2020)DAILY MARKET BRIEF 1:European equities to reverse losses, as attention moves to January PMI

24 January 2020, 09:03
Jiming Huang

The World Health Organization tried to kill the deadly coronavirus by announcing that it is only a local crisis for now in an attempt to stop the panic from spreading, but the sentiment among traders remained sore in Asia. China and South Korea were closed. Nikkei advanced by a timid 0.13%, Hang Seng gained 0.15% in a short trading session before traders took off for Lunar New Year holidays.

FTSE (+0.79%) and DAX (+0.78%) futures rallied however, hinting that European traders could brush off some of this week’s negativity at Friday’s open.

US stock futures advanced as well, as fourth quarter earnings topped analyst expectations so far. 82 companies out of the S&P’s 500 revealed their Q4 results; sales surprised by 1.30% and earnings by 4.07% on the upside. Early releases hint that it could be another quarter where pessimistic forecasts would help pushing stock prices to fresh highs.

In the fx market, the yen strengthened below 110 mark against the US dollar as inflation ex fresh food in Japan rose from 0.5% to 0.7% in December matching analyst estimates. Early PMI data showed that the contraction in Japanese manufacturing slowed in January, as services expanded after last month’s surprise contraction.

In Europe, the European Central Bank’s (ECB) policy statement was slightly more dovish than expected. The new ECB head Christine Lagarde said that there are signs of moderate improvement in inflation and that the downside risks to the growth have diminished – and today’s preliminary PMI data could confirm that. But the ECB said that it will keep the rates at the current levels or below until the inflation is brought near the 2% target and that the bond purchases will continue until shortly before the rate normalization. The ECB keeping the door open for lower interest rates was the major dovish nuance at Thursday’s announcement. The EURUSD dived to 1.1037 and remained capped below the 1.1060 mark as investors increased their short bets for a move toward and below the 1.10 handle.

The pound consolidated gains above the 1.31 mark against the US dollar as long positions piled up on expectation that today’s PMI figures would point at improved economic activity in the UK following a depressed pre-election period. Today’s data will give a first indication about the health of the British economy having found a certain political stability amid Johnson’s solid victory in December and a way to move out of the European Union avoiding the much-feared no-deal scenario. A strong PMI read could tune down the rate cut expectations that spiked from nearly zero to 60% for the Bank of England’s January meeting. Any disappointment, on the other hand, should further revive the BoE doves and pave the way for a slide below 1.30 against the greenback before next week’s monetary policy meeting.

By Ipek Ozkardeskaya

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