De-risking into the weekend
- Italy's PD Senator on early elections
- London COVID-19 variant found in Japan
- Pfizer supply issue slows vaccination program
- AUDNZD bond yield divergence favours sellers
- New Zealand 10 year bond yields like CPI beat
- Copper falls nearly 2% on risk off tones
- European equity markets fall on weak PMI's
- UK January services PMI 38.8 vs 45.0 expected
- US oil falls from $54.00
- Eurozone Services PMI January 45.0 vs 44.5 expected
- Bond yield spread between Italy and German hits 9 week high
- Germany January services PMI 46.8 vs 45.0 expected
- GBPUSD and failing to make a higher high rule
- GBPUSD drops from 1.3700
- UK December public sector net borrowing £33.4 vs £31.4 billion expected
- UK December retail sales 0.3% vs 1.3% m/m expected
- Dollar Index finds support at 90.00
- Markets de-risking into the weekend?
Other markets
- FTSE -0.71%
- Euro Stoxx -1.06%
- Dax -0.80%
- CAC -1.18%
- Bitcoin +3.16%
- Gold -0.96%
- US oil -2.33%
The session started with risk off tones on some de-risking into the weekend after the strong gains seen this week in equity markets since Tuesday. That risk off tone accelerated as the PMI data from Europe presented a string of weak prints. First off, let's look at the UK retail sales print which hit the GBP early in the session.
December's retail sales from the UK was a terrible report. The ONS reported it as the largest annual fall for sales in history. See the release here. However, online sales went up nearly 50% from 2019. Unsurprising, but at least there was some sort of growth metric in the dark cloud of that report. The question I have going forward is to what extent has retail selling been permanently changed by COVID-19. Some of the digital trends during COVID-19 are bound to stay in a post COVID-19 world, but which ones? All eyes on Israel for that one.
The GBPUSD hated the report and GBPUSD fell away fast from the 1.3700 level and new recent highs on the daily chart.
The report has potentially opened up a decent sell with the USD strength on the risk off tones and signalled a short term trend reversal. See here. As an aside there is a decent trading rule used by the legendary Wall St trader Victor Sperandeo which applies in the GBPUSD situation. You can check it out here.
European PMIs come in weaker than expected
EURUSD was initially pressured on France's PMI reading. Manufacturing picked up, but services continued its dip. German PMI's were so so, but UK PMI's were a disaster. This dragged the whole European equity complex lower and US futures fell on the disappointment too. The DXY held up support at 90.00 as anticipated as the risk off tone remained. After the PMI misses the risk off tone had a reason to stay.
In other news Italian and German bond yield spreads hit a 9 week high on the prospect that Italian PM Conte may be seeking early elections after recent polling data. Commodities fell lower on the stronger USD with platinum down -3.00% at one stage, copper nearly -2.00% and WTI testing the daily trend line and gold falling over 1.00%
In the big picture nothing too alarming and this is just a pullback in recent risk asset strength. The strength is set to continue as central banks turn more optimistic and fiscal stimulus taps are wide open. Any deeper retracements are likely to find medium term dip buyers even with some de-risking into the weekend. A January set back in PMI's was expected after the recent lockdowns across Europe. They are just worse than expected plus we are de-risking into the weekend so that is the way to understand these moves for now.
As an interesting aside AUDNZD shorts now look attractive as the market digests the latest shift from New Zealand and the moves higher in NZ bond yields. This was on the back of the better than expected CPI data. It was the final piece in my jigsaw for AUDNZD shorts and all is according to plan so far. The chart shows an attractive area for shorting and risk can be easily managed. See here. BTCUSD found some support at $30,000 which is holding for now.
That's all from me folks enjoy your weekend.