Risk appetite improved sharply in Europe with hopes for coronavirus treatment even though the death toll continued to increase.
The dollar was boosted by robust ADP employment data with the currency index at 2-month highs as EUR/USD tested the 1.1000 area. The Japanese yen continued to lose defensive support with USD/JPY testing 110.00.
Sterling failed to hold gains secured after stronger business confidence data with GBP/USD trading back below 1.3000.
The final Euro-zone PMI services-sector index was revised up to 52.5 from the flash reading of 52.2 with the German index posting a 5-month high. Employment also increased on the month, although order backlogs declined marginally. Retail sales data was weaker than expected with a 1.3% December decline. ECB President Lagarde stated that the coronavirus is adding another layer of uncertainty, although the threat of a US-China trade war had receded.
The US trade deficit declined slightly for 2019, the first decline for six years as the deficit with China narrowed. The ADP data recorded an increase in private-sector jobs of 291,000 for January, substantially above consensus forecasts of 160,000 and there was only a marginal December downgrade to 199,000 from 202,000. According to Moody’s analytics, the total was likely to have been boosted by mild weather as the construction sector recorded net growth of 47,000 as seasonal layoffs were less than usual. Nevertheless, the ADP boosted confidence in the US outlook and the dollar secured fresh buying.
The ISM non-manufacturing index strengthened slightly to 55.5 from a revised 54.9 the previous month and slightly above market expectations. The business activity index strengthened to 60.9 from 57.0 and there was growth in new orders, but order backlogs continued to decline and employment growth slowed. Expectations of firm growth continued to underpin the US currency with the dollar index posting fresh 2020 highs as EUR/USD dipped to just below 1.1000. There was little change on Thursday with EUR/USD just below 1.1000 as German industrial orders posted a 2.1% December decline.
Ahead of Wednesday’s New York open, there was a fresh surge in risk appetite following reports that China had found an effective treatment against the coronavirus and that there had been a breakthrough in finding a vaccine. Although there was still a high degree of uncertainty, equity futures moved sharply highly and Treasuries lost ground with the 10-year yield rising to 1.65%. Defensive yen demand faded again and USD/JPY pushed to highs near 109.70 against the Japanese currency.
The dollar maintained a firm tone following the US ADP data, but Treasuries resisted further selling pressure towards the European close and the dollar drifted lower. Wall Street equities set fresh record highs into the close and the dollar pushed to highs around 109.85. Although the coronavirus death toll increased sharply to over 500, risk appetite secured a further boost on Thursday as China announced a cut in import tariffs. Equities advanced further with USD/JPY testing the 110.00 level before a slight correction as President Trump’s impeachment acquittal had little overall market impact.
The UK PMI services index was revised up to a final January reading of 53.9 from the flash reading of 52.9 and the December reading of 50.0. The magnitude of the revision was unusual and suggested an on-going improvement in sentiment with the overall index at a 16-month high as the composite index also strengthened. New business increased strongly on the month and companies were looking to boost employment and overall sentiment was the highest since May 2015.
The data boosted confidence in the outlook and further curbed the potential for any near-term Bank of England cut in interest rates. Sterling moved higher following the data with GBP/USD above 1.3050, but failed to hold its best levels and lost ground in New York as markets again fretted over tough negotiations with the EU over trade and financial services. GBP/USD traded below 1.3000 on Thursday with GBP/EUR around 1.1800 as firm global risk appetite and gains in oil prices failed to provide significant currency support.
|07:00||German Factory Orders (M/M)(DEC, 2019)||0.60%||-0.80%|
|08:00||European Central Bank President Lagarde Speaks||-||-|
|08:15||ECB Luis De Guindos Speaks||-||-|
|09:00||ECB Economic Bulletin||-||-|
|13:30||Nonfarm Productivity (Q/Q)||1.20%||-0.20%|
|13:30||USD Initial Jobless Claims||215K||216K|
|13:30||USD Continuing Jobless Claims||1.720K||1.703K|
|14:15||FOMC Robert Kaplan Speech||-||-|
|21:30||AiG Construction Index(JAN)||-||38.9|
|22:30||RBA Assistant Gov Lowe Speaks||-1.70%||-2.00%|