10:00 GMT- Mar 31 (global-view.com) The first business day of the month is always very interesting as it sees the latest set of manufacturing PMI releases. They tend to be a useful predictor of future economic activity and an interesting comparative study. In Europe and the U.K., the data were surprisingly strong. The Swiss manufacturing PMI surged higher. U.S. data are due later. the Japanese quarterly Tankan survey is out was mixed at best. Forex markets are in a pre-holiday frame of mind.
The U.S. sees weekly jobless data and the manufacturing PMI later today. Traders are also setting up for U.S. non-far payrolls on Friday. After the disappointing ADP jobs report -23,000 decline. .Street estimates are now for a gain of +100 to 200K jobs. A bounce back from the poor weather in February is still expected, but we have noticed that the March weather related recovery in economic statistics has been minimal. On Friday most markets are closed. The few U.S. markets which are open on Friday will close mid-morning once the jobs data are out.
The EURUSD is trading easier and the EURGBP is softer. The GBPUSD is up in line with the weaker USD. The EZ flash manufacturing PMI was revised higher to 56.6 from 56.3 and 54.2 in February. U.K. march CIPS manufacturing PMI was 57.2 vs. 56.6 in February. We still wonder where the EUR goes once short- covering demand has run its course. Europe is not unhappy with a weakening currency while inflation is not a pressing issue.
The EURCHF has weakened further today. The Swiss PMI was at a boom level of 65.5 in March vs. 57.4 in February. The weakness of the EUR vs. the CHF continues to be a bad omen for the EUR No signs of the SNB yet, but always have to wonder if they are waiting in the wings? The USDCHF is slightly lower.
The USDJPY pair is modestly lower, while the EURJPY cross is down. The quarterly Bank of Japan Tankan Survey was a mixed bag and did not suggest a strong performance for the quarter ahead, Capex projections were weak.
There has been a lot of chatter for a variety of reasons that there is an overhang of long JPY hedges (vs. the USD and EUR) that will have to be unwound. There have been reports that corporations are over hedged currencies based on overly optimistic foreign revenue projections. This activity is coming just as the fiscal year ends and repatriation demand for the JPY wanes. Expect no official opposition to a weaker JPY. In fact, Tokyo wants its currency to weaken as one strategy for stimulating growth and encouraging price increases is a weaker currency.
The risk trades continue to send mixed signals and that is significant. The commodity currencies (CAD, AUD and NZD) are mixed. After disappointing Australian retail sales data yesterday, many still feel a rate hike is still on the table for next week Oil and gold are higher. Equities are mixed. In U.S. Treasuries, the focus is still on the 10-yr note and the psychological 4.00% level. Bonds are the counter to risk trades. This is because risk investments must somehow be financed. When the cost of money moves up (higher interest rates), the return and allure of risk trades falls.
Far East equity markets closed mostly higher. European bourses are up. U.S. equities are higher. The U.S. 10-yr was last 3.84%, +1bps.Fixed income markets are vulnerable as they consider the prospect of an end to excessive Fed ease and large borrowing needs by the the U.S. government. Nevertheless. Fed Funds should remain low for an extended time period.
UPCOMING DATA HIGHLIGHTS: In North America, U.S.weekly jobless claims, manufacturing PMI and construction data will be released. Natural Gas inventories are on the docket as well.
See ECONOMIC CALENDAR for a complete list of future forex market events and consensus data estimates. Go to the forex forum for up-to-date market developments and technical trading ideas.
John M. Bland is an author, and co-founder and partner of Global-View.com in 1996. Before that, he was a Vice-President and senior dealer in the fx inter-bank and futures trading arm of the Continental Grain Company in NYC. Previous to that, he was an early member of the Chemical Bank (NYC) corporate advisory service. He also worked in international liability management. John has an MBA from the Hass School at the University of California at Berkeley and a bachelors degree in International Economics from Berkeley.
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