Asian equity markets from Japan to Jakarta are broadly higher as the People’s Bank of China cut the bank reserve requirement less than three months after its first interest rate cut in over two years. The move was widely expected as China combats sluggish growth that has reached 24 year lows and was shocked by a manufacturing PMI in January that signaled a decline in the manufacturing sector. This is latest round of central bank stimulus after yesterday’s surprise rate cut in Australia, and has currencies reacting in a strong fashion. The Japanese Yen, Korean Won, and Taiwanese dollar have all given up ground to the greenback, while the Australian dollar is stronger after yesterday’s whipsaw price action.
Even in light of far better than expected retail sales and services PMI numbers out of Spain, the euro has shrugged off the positive numbers and slid to the mid-1.14s versus the big dollar. While markets have appeared to have stabilized after a more conciliatory tone struck by the new Syriza led government in Greece, there is still concern that the renegotiation of Greece’s prior bailout could throw the common currency block into disarray. Equity markets in eurozone reflect this unease, as both the FTSE and DAX are down on the day, even as sterling rallies in response to a stronger service PMI number for the United Kingdom. The expectation going forward is that the potential re-emergence of the Greek crisis will continue to weigh on the euro, even as the impact of the ECB’s asset purchase program begins to take hold within the Eurozone.
The big news out of North America this morning came with a strong dose of disappointment. ADP payroll figures in the United States missed expectations coming in at 213K new jobs, 11k less than expected. With PMI data for both the United States and Canada yet to be released later today, the full impact of this miss has yet to reverberate; however, in pre-market trading US equity futures are down and the loonie continues to sit in the mid 1.24 level after its nearly four cent rally against the big dollar. In terms of commodity prices we have seen WTI come off the $53 level it attained yesterday after news of massive capex cuts from oil producers drove it higher. The volatility in oil, along with what appears to be a relative slowdown in the US economy after a stellar Q3, the implications for the Canadian dollar at this point are unclear; what is clear is that we can expect a bumpy ride no matter which direction the market decides to turn.
Further reading:
ADP Non-Farm Payrolls miss at +213K, but accompanied by an upwards revision
Negative interest rates: The new weapon in the forex wars
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