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Global equity indices are off to a volatile, yet ultimately optimistic start, as today kicks off the second quarter of 2015.   While positive data in both Europe and Asia may be driving sentiment, in the absence of any grand narrative it is too soon to tell if equities are being led higher by optimism, or if instead today’s price action is largely driven by calendar based portfolio rebalancing.

In China, the Shanghai Composite hit seven year highs, rocketing 1.7% higher in today’s trading after signs the Chinese economy is not in as dire condition as many market participants have feared.   With prior rumblings from Chinese policy makers indicating an appetite for further interventions as the Chinese economy struggles to hit its 7% grow target this year, both the official and HSBC’s final PMI surveys surprised analysts to the upside signalling that manufacturing activity in the world’s second largest economy was not decelerating as rapidly as previously thought.

In Europe the good news continues, while the FTSE Eurofirst 300 share index started the day in the red, it is now in the positive as the market digests data that indicates the manufacturing sector in the eurozone hit a ten month high in March, while an equivalent survey in the UK touched eight month highs. The positive data out of the common-currency bloc has the euro higher against the greenback, though it remains confined to the recent wide ranges it has displayed as of late. As of now the USD is trading in the high 1.47s versus Sterling, while the euro is sitting at the high 1.07 level versus the buck.

Moving on to North America all eyes are on the ADP Non-Farm Employment Change, those hoping for signs of improvement in the American labour market will be sorely disappointed as the economy had only added 189k new jobs in February versus expectations of a 227k gain. This is the third disappointing report in a row and begins to call into question the strength of economic growth in the United States after a solid performance in the second half of 2014.   The obvious more long term implications of continued weakness in the labour market along with potentially feeble inflation figures is that the time table for interest rate increases on the part of the fed will continue to be pushed back.   With diminishing prospects of future interest rate increases a lot of the steam will be taken out of the ascendant USD dollar. As of now, the impact on the USD has been muted, with the exception of its performance against the loonie, where it has declined over a cent in the last 24 hours with it currently trading in the mid 1.26 level. Additionally, this data is playing into equity prices prior to the start of North American trading with equity futures suggesting that the S&P500 will continue withTuesday’s losses especially in light of the poor employment report. With further US manufacturing and price surveys to be released later this morning, along with the disappointing ADP report, today is shaping up to be a volatile day especially for those exposed to the USDCAD.

Further reading:

ADP Non-Farm Payrolls misses at 189K – USD slides

Trying to fend off deflation