Risk assets and high yielding currencies are recovering some of yesterday’s losses ahead of macro data out of the US, with manufacturing productivity expected to show strength in February. If the market consensus is accurate, this will be the fourth consecutive rise in manufacturing numbers and will show that the broader economic data remains in an uptrend. The other main event risk will be the meeting with the leaders of EU member nations but given that this is a meeting of politicians, we are unlikely to see any specific changes to the bailout changes currently in place.
Overnight, data from Japan showed that fourth quarter 2011 capital spending increased by the highest levels in 5 years and manufacturing productivity in China rose in February. In the UK, FTSE 100 futures are mostly unchanged with today’s macro data coming in the form of Nationwide Housing Prices and the Purchasing Managers Index (PMI) for the manufacturing sector of the UK economy. Corporate earnings will be released by Man Group, WPP, Fiberweb, and Derwent London.
As is generally the case, equity markets in Asia followed the trends in the US and closed lower on the session with export sector companies amongst the biggest losers, with Sony, Mazda and Toyota posting losses on the latest round of strength in the Japanese Yen (JPY). Recent price activity in the JPY, however, has shown signs of a trend change so there are positive prospects for Japanese export companies going forward this year. The Nikkei 225 as a whole was modestly lower but is still trading above 9,705 at the moment.
Slowing volatility in the markets is also evident in the US stock futures, with the S&P 500 pointed to a lower open of 3 points but today we will see Initial Jobless Claims, Construction Spending, and the ISM Manufacturing survey. Earnings will be coming from Foot Locker, Wendy’s, and Kroger. Yesterday’s main driver in US equities was the congressional testimony from Federal Reserve Chairman Bernanke. The immediate market reaction was negative, as there was no indication that additional injections of quantitative easing stimulus will be seen.
In the Eurozone, we will see manufacturing PMI reports from France and Germany, and this will be followed by the wider Eurozone manufacturing PMI report, Consumer Price Index (CPI) and the Unemployment rate. The heavy data docket will be rounded out by the Gross Domestic Product (GDP) and manufacturing PMI out of Switzerland.
The GBP/USD is pressuring the topside of its hourly range with prices breaking to new highs just below 1.60, a major psychological level. Support is now seen at the double bottom at 1.5650 and prices are expected to be contained here in the near term. A daily close above 1.60 would be very bullish and target gains in the 1.6130 region, which is an old historical high and the 61.8% retracement of the last major decline.
The S&P 500 continues to obey its longer term uptrend even on the hourly charts, with prices forming consistent higher highs en route to a test of resistance at 1375. Looking at the MACD indicator, we can see that momentum is negative but that the downward pressure is over extended. Given this, support at 1355 is expected to hold, and short term longs can be initiated here for another run at the recent highs.