Good data, good mood, plus some surprises

4 January, 2017

What can go wrong when the day starts with a surprisingly strong Chinese manufacturing PMI - especially ata moment when it s failure to meet expectations could have caused severe deterioration of global sentiment? With the US and other important markets re-opening only today after the New Year break the whole lot of strong business sentiment measures had to be discounted and this led to gains in Asia and the US, with mixed performance in Europe after the gains observed yesterday.

Chinese PMI for the manufactruing sector was a highly awaited one given what happened a year ago when fears about destabilization of China sent equities sharply down across the globe. Instead of a collapse the markets saw China Caixin PMI marking its fastest rate of improvement in three years. AUD and NZD jumped to the lead at first being highly dependant on Chinese economic performance. AUD was additionally strengthened by its local sentiment indicator for the manufacturing sector, while the kiwi was lagging behind most likely preparing for weaker results of the milk auction.

The US dollar started its intensive rebound around 7 am. Due to this EURUSD pared gains in the morning at about the time when weak preliminary December inflation data from France was released (+0.3% MoM vs. 0.5% expected). Germany also had a flash release later during the day and strong regional outcomes prepared the market for the push of HICP from 0.7% YoY to 1.7% that followed. Eurozone preliminary data for December will get published at 10am tomorrow. The surge of German CPI did not prevent EURUSD from hitting 1.035. It was only after the very positive (!) set of figures from the US that the pair started to move higher.

The oil market trading was also back today and at first the confirmation of output cuts by Kuwait and Oman helped to lift the price, but the later news included Iraq signalling that Kurds are exporting more than was agreed. The strange reaction of USD to strong US data (ISM manufacturing data beat both the forecast and prior reading in coming in at 54.7, accompanied by strong construction spending) has also seen a sudden drop of oil price (and due to this the commodity is down 2% today despite solid gains in the first half of the day) and gold getting more expensive. Platinum price started to move higher even before the surprising USD pullback.

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