EU Open - Dollar retraces, Yuan rises; risk-on in Asia after strong PMI numbers

Markets Overview:

  • Equities: Nikkei (-0.37 %), Hang Seng (+1.53 %), CSI 300 (+0.03 %), KOSPI (-0.16 %), ASX 200 (+0.30 %)
  • Commodities: WTI Crude $53.17 (-0.17 %), Brent Crude $56.29 (-0.30 %), Natural Gas $3.26 (-0.34 %), Gold $1177.21 (+1.17 %), Copper $257.45 (+0.70 %)

What traders are talking about:

Risk appetite increases after solid PMI figures

It was a risk-on session in Asia, following strong Services PMI numbers out of three major economies – Japan, China and Australia. Most of the Asian stock indices rose overnight, and in FX, the risk currencies were bid, while the US Dollar declined across the board. Commodities were mixed however, with Oil again under slight pressure, but precious metals rallying amid the USD weakness.

Yuan rallies

The offshore Yuan rallied more than 1 % overnight, following a 1.40 % rally yesterday, as China is trying to prevent further capital outflows and support its currency. Many speculators were short the Yuan going into 2017, but some are now cutting their positions as the underestimated China's effort to support the Yuan.

USD/CNH fell from 6.89 at the Shanghai Open to a low of 6.78. Meanwhile, the PBoC put today's USD/CNY fix at 6.9307 (vs. 6.9526) yesterday.

Strong PMI figures

Australia, Japan and China released their latest Services PMI numbers, and all prints came in higher than anticipated.

Australia's Services PMI figure for December arrived at 57.7 (vs. 51.1 previous). AiG highlighted that this was the highest monthly result since May 2007, and that growth in November has been sustained. All five sub-indices were above 50.0 and indicated an expansion in December, with Sales seeing the largest increase (62.1 vs. 48.1 in November).

The Nikkei Services PMI came in at 52.3 (vs. 51.8 previously), which marked at a fresh 11-month high.

Meanwhile, the Caixin Services PMI stood at 53.4 in December, which is an increase of 0.3 from the previous month. Markit noted that the Services PMI is at a 17-month high and the Composite PMI at a four-year high. Further, they said that both manufacturers and services providers saw a steeper increase in activity, and that input price inflation remains sharp. All sub-indices increased in December.

Worries South Korea may be named a currency manipulator

A South Korean state-run think tank said that with Donald Trump soon in office there is an increased possibility that the country will be labelled a currency manipulator, along with China. South Korea was listed in the US Treasury's currency watch list in October, along with countries such as China, Japan and Switzerland. The think tank expressed concern that Trump may change the criteria so that it becomes easier to declare China a currency manipulator, which would then also have an affect on South Korea. The Won strengthened overnight, with USD/KRW falling from 1210 to 1883.

Today’s key events

In the upcoming EU session, the focus will be on UK Services PMI (expected to arrive at 54.8) and the ECB meeting minutes. In the US session, the main events will be US ADP (expected at 170k), as well as US initial jobless claims, which are anticipated to arrive at 260k. Finally, we will get the US ISM Non-Manufacturing PMI, and the market is expecting a 56.6 print.

Economic Calendar:

  • 08:15 GMT - Swiss CPI
  • 09:30 GMT - UK Services PMI
  • 12:30 GMT - ECB Meeting Minutes
  • 13:15 GMT - US ADP Nonfarm Employment Change
  • 13:30 GMT - US Initial Jobless Claims
  • 14:45 GMT - US Markit Services PMI
  • 15:00 GMT - US ISM Non-Manufacturing PMI

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