A rise in global manufacturing PMIs has helped shore up investor sentiment overnight and we enter a world in which risk looks to be very much ‘on’ again. But gains could be limited by reports that the IMF and Germany have yet to reach agreement over the size of the Greek haircut. While the Greek government have talked about a deal being reached in a number of hours, the IIF have suggested that it might take a number of days, implying that we might see another weekend go past without resolution. A Greek deal could see the euro rally, but stronger US data is likely to limit the upside. GBP/EUR is back at 1.20+ this morning, while cable is trading around $1.5850, which is its highest level since November.
Yesterday’s US Employment report was in line with consensus, with the number employed rising by 170,000. Although this proved to be much weaker than December’s 292,000 rise, the underlying trend looks to be upwards, which is consistent with the decline in weekly jobless claims to a weekly average of 350,000 from over 400,000.
Fed Chair Bernanke is due to testify to the House Budget Committee on the state of the US economy this afternoon. We suspect that he will continue to highlight the uncertainty about the path of recovery, which has hardly been helped by a downbeat forecast for 2013, which is sees growth slowing as previous tax cuts fade.
In the UK; The small fall in construction activity in the Advance estimate of Q4 GDP was surprising as warmer than usual weather normally boosts construction providing an offset for weaker utilities output. Given that January was also relatively warm (until the very end) there is a chance that Olympic Games related construction (several projects look to have been completed a little ahead of schedule) could provide a boost in January above consensus, but such blips will prove temporary.
Moving away from GBP, EUR and USD – the New Zealand dollar spiked yesterday evening a recent highs – benefiting from a return of risk appetite. Many analysts have showed their concern about the stubbornness of the kiwi at these levels and state that increased foreign appetite for New Zealand bonds since July is the main reason behind this strength in the kiwi. These same analysts still think a significant reversal is looming…
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