Equity markets in Asia were higher for the most part on the back of positive manufacturing data out of China during the month of December. The gains were limited, however, as corporate earnings in the US were uninspiring and this weighed on risk sentiment during the session. Another risk negative was the trade balance report out of South Korea, which showed that export figures dropped for the first time in more than 2 years (falling by a massive 6.6 percent).
In commodities markets, we saw the oil price start to stabilize and post some moderate gains after nearly a week of losses as analysts forecast lower demand levels globally. Wheat prices were also higher by 1.4 percent on reports that cold fronts in Russia and the Ukraine will limit supply levels. But the Purchasing Managers Index (PMI) report out of China was the main story, showing a rise to 50.5 for the month of December, barely managing to surpass the expansionary 50 level but was encouraging enough to reverse the impact of the day’s other negative stories.
The Euro was lower against most of its major counterparts overnight as end of the month order flows led to some position squaring in short-term long positions. Adding to the downside pressure is the Greek PSI agreement event risk as deadlines for bond repayment agreements draw closer. Some sources have suggested that Greece is reluctant to implement some of the EU-suggested austerity measures and any breaks in consensus will be viewed unfavorably by markets and put downside pressure on the currency.
But with little in the way of substantive headlines in the region, most of the attention was focused on US data yesterday where the Chicago PMI missed expectations and consumer confidence surveys were weaker. We will see more PMI reports today from various counties around the globe, so we will be watching to see if this US data is indicative of a wider trend in the world economy.
Looking ahead, volatility in the US session will be generated by today’s Institute for Supply Management (ISM) manufacturing survey, which is expected to show a rise to 54.5, and this would be the largest advance in six months. Again, here, numbers above 50 are indicative of expansion but given what we saw yesterday in the Chicago PMI we could easily see a downside surprise in the ISM numbers. If this winds up being the case, expect the S&P 500 to show a further retreat from this week’s highs.
Markets are well are of the looking threat of central bank intervention in the EUR/CHF but since that pair is at a near stand still close to 1.20, we will instead define our levels for the USD/CHF which is also very close to our buy zone. Support for this pair comes in at 0.8980 and we will start building long positions here as the Dollar is oversold in most of the other major currency pairs and we expect extreme weakness in the CHF in the coming sessions. Resistance now seen at 0.95.
The S&P 500 is bouncing strongly off of the double bottom support region at 1305. This is now the key level to the downside and a break here will accelerate losses. Given the latest bounce, however, we are expecting a topside break at the weekly historical and Fibonacci highs at 1315. Our range at this stage is clearly defined, so wait for a break and then retracement before committing to new positions.