Feb 21 02:50 GMT


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Mid-Day Report: Equities to Extend Rally on Strong ADP Job Data, FX Steady Print E-mail
Market Overview | Written by | Mar 06 13 14:01 GMT

Mid-Day Report: Equities to Extend Rally on Strong ADP Job Data, FX Steady

Global equities strengthened today, following US stocks as DOW made a record high yesterday. Strong employment data was released from US in early US session and provided further support to investors sentiments. US futures point to higher opening. Nonetheless, the forex markets remain relatively steady so far with major pairs a crosses trapped in tight range, except some notable firmness in Aussie. USD/CHF does jump a bit but is limited below recent high of 0.9462 so far and lacks follow through buying. The ADP report showed that private sector jobs in US grew 198k in February, comparing with expectation of 168k. Prior month's figure was also revised up fro 192k to 215k. The data raised expectation of a strong non-farm payroll report this Friday which markets are expecting 158k growth in February. However, note that the employment component of both ISM indices dropped mildly in February. Hence, the optimism for Friday's NFP is not without risk. Nonetheless, risk markets are enjoying strong rally as recent comments from Fed Bernanke and Yellen suggested that Fed would continue with its ultra ease monetary policies.

BoC will be a main focus today as markets are expected the central bank to leave rates unchanged at 1.00%. BoC has noted that the need for rate like is "less imminent" in the last statements. But based on recent economic data and outlook, the central bank could even totally drop the tightening bias. And if that happens, we could seen another round of rally in USD/CAD.

Quick Update: Canadian dollar drops sharply after BoC kept interest rates unchanged at 1.00%. The central bank noted that "the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required". This compared to last statement's "timing of any such withdrawal is less imminent than previously anticipated". Clearly, BoC has adopted a more neutral stance. Meanwhile, Ivey PMI dropped sharply to 51.1 in February, down from 58.9, and way off expectation of 56.2.

Euro didn't participate in risk rally against dollar and has indeed weakened mildly ahead of ECB rate decision tomorrow. While analysts are not looking for a rate cut at this meeting, there are speculations that ECB president Draghi would signal the chance of further monetary easing ahead based on the dim economic outlook. Data today showed Eurozone's GDP contracted by -0.6% qoq in Q4, without revision from first estimate. Recent PMI data suggested that Eurozone is still in contraction in Q1 even though the pace might be a bit slower. Sterling also weakens mildly ahead of tomorrow's BoE rate decision. There were some speculations that BoE would expand the asset purchase program by GBP 25b. But it's more likely that BoE would stand pat on rates as QE.

Australian dollar and New Zealand dollar are the strongest performers this week so far. Aussie was supported by solid economic data this week. Australia GDP grew 0.6% in Q4, inline with expectation. Overall growth in 2012 was at 3.6%, strongest pace in fives years since 2007. Treasurer Swan hailed that "Australia's around-trend growth rate over the year is more than four times the OECD average." And he said that the country has managed to "achieve solid growth in the December quarter at a time when around half of all advanced economies contracted, including five major advanced economies." However, some economists pointed out that the details of the GDP report were weak as domestic demand remains below trend and the growth was too heavily dependent on exports.

At his last Government Work Report, Chinese Premier Wen Jiabao unveiled that the government retained its GDP growth target of 7.5% but reduced the CPI target to 3.5% from 4% last year. This was compared with PBoC Deputy Governor Yi Gang's CPI forecast of 3% in 2013. The report showed optimism over the country's economic outlook. While the economic recovery after the global financial crisis remained "full of uncertainty and not yet on a stable footing", the "considerably increased capacity" in the manufacturing sector, "significantly improved" infrastructure, high savings rates and large workforce act as "favorable conditions and positive factors" to sustain economic developments.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.5081; (P) 1.5139; (R1) 1.5185; More...

GBP/USD weakens mildly but stays in tight range above 1.5 psychological level. Intraday bias remains neutral for the moment and some more sideway trading could be seen. But still, as long as 1.5221 minor resistance holds, near term outlooks stays bearish and deeper decline is expected. Sustained trading below 1.5 will extend the whole fall from 1.6380 to 1.4229 key support level next. Though, break of 1.5221 will indicate short term bottoming and bring stronger rebound.

In the bigger picture, price actions from 1.3503 (2009 low) are treated as consolidations to long term down trend from 2.1161. The break of 1.5268 support argues that such consolidation is completed with five waves, as a triangle pattern, at 1.6380 already. Break of 1.4229 support should add much more credence to the case that whole down trend from 2.1161 is resuming for a new low below 1.3503. We'll continue to see how GBP/USD reacts at around 1.5 psychological level to judge the odds of this bearish case again.

GBP/USD 4 Hours Chart

GBP/USD Daily Chart

Economic Indicators Update

GMT Ccy Events Actual Consensus Previous Revised
00:01 GBP BRC Shop Price Index Y/Y Feb 1.10% 0.60%
00:30 AUD GDP Q/Q Q4 0.60% 0.60% 0.50% 0.70%
10:00 EUR Eurozone GDP Q/Q Q4 P -0.60% -0.60% -0.60%
13:15 USD ADP Employment Change Feb 198K 168K 192K 215K
15:00 CAD BoC Rate Decision 1.00% 1.00%
15:00 CAD Ivey PMI Feb 56.2 58.9
15:00 USD Factory Orders Jan -2.10% 1.80%
15:30 USD Crude Oil Inventories 1.1M
19:00 USD Fed Beige Book

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