7 Feb 2014
Flash: A calmer market on what basis? - Rabobank
FXStreet (Guatemala) - Analysts at Rabobank noted the return to calm in global markets.
Key Quotes:
“The return to calm in global markets is obviously still hostage to many factors, and one of the key near-term ones is today’s HSBC/Markit services PMI from China given fears of a China slowdown”.
“The manufacturing series from this particular source is already below the key 50 level and the December services print was only 50.9 – will we see a worrying drop closer to 50 here, suggesting a broader-based slowdown?”
“Although we also get UK and German industrial production this morning (seen up 0.6% and 0.3% MoM, respectively) the next real market hurdle for today is the monthly US payrolls report. The expectation is for a rise of 180K after the weak 74K print seen in December, and for the unemployment rate to stay unchanged at 6.7%”.
“The payrolls series always has the potential for a surprise, and in this case we also have the Department of Labor’s annual survey revisions as well as the impact of recent extreme weather conditions to factor into the mix. If we get a strong payrolls rebound then volatility in EM FX is likely to re-emerge; even an in-line reading might see EM weakness as profits are taken after the recent rallies; however, it is the reaction to a further weak report (which could even point to risks of the Fed potentially pausing QE tapering only 6 weeks after it started it!) that is perhaps hardest to call – would the promise of more of the “Great Flotation” really help EM if it also coincides with the view that the US economy (and China?) might be slowing again?”
Key Quotes:
“The return to calm in global markets is obviously still hostage to many factors, and one of the key near-term ones is today’s HSBC/Markit services PMI from China given fears of a China slowdown”.
“The manufacturing series from this particular source is already below the key 50 level and the December services print was only 50.9 – will we see a worrying drop closer to 50 here, suggesting a broader-based slowdown?”
“Although we also get UK and German industrial production this morning (seen up 0.6% and 0.3% MoM, respectively) the next real market hurdle for today is the monthly US payrolls report. The expectation is for a rise of 180K after the weak 74K print seen in December, and for the unemployment rate to stay unchanged at 6.7%”.
“The payrolls series always has the potential for a surprise, and in this case we also have the Department of Labor’s annual survey revisions as well as the impact of recent extreme weather conditions to factor into the mix. If we get a strong payrolls rebound then volatility in EM FX is likely to re-emerge; even an in-line reading might see EM weakness as profits are taken after the recent rallies; however, it is the reaction to a further weak report (which could even point to risks of the Fed potentially pausing QE tapering only 6 weeks after it started it!) that is perhaps hardest to call – would the promise of more of the “Great Flotation” really help EM if it also coincides with the view that the US economy (and China?) might be slowing again?”