Market Review – 02/09/2010 22:47 GMTEuro rises due to solid European bond auctions ahead of U.S. non-farm payrolls
The single currency strengthened against the greenback on Thursday, as solid results from Spanish and French bond auctions boosted risk appetite and gave support to euro, however, investors remained cautious ahead of the release of US non-farm payrolls.
Although the single currency moved sideways on Thursday after Wednesday’s rally from 1.2663 to 1.2856 and edged lower to an intra-day low of 1.2776 in Europe, euro rebounded from there and rose to 1.2838. Later, despite euro’s brief fall to 1.2795 after the comments from ECB’s Trichet, the pair staged a strong rebound and climbed to 1.2848 in NY before trading narrowly.
The single currency was supported by solid demand from Spanish and French bond auctions, as France and Spain sold a combined 12.2 billion euros of government bonds, with strong demand for longer-dated paper as investors were eager for higher-yield in the low growth environment.
ECB President Trichet said current ECB interest rates were appropriate and expected eurozone economy to grow at a moderate and uneven pace, and price developments to remain moderate over medium term horizon. Trichet said ECB would extend full allotments at all liquidity operations. He added downside risks included renewed financial market tensions, higher oil and commodity prices whilst upside risks included stronger global economy and tax increases.
Earlier, The European Central Bank kept interest rates at a record low of 1% as widely expected. In addition, eurozone GDP rose by 1.0% q/q and 1.9% y/y versus the downwardly revised 0.3% q/q and 0.8% y/y whilst PPI rose by 0.2% m/m and 4.0% y/y versus the readings of 0.3% m/m and 3.0% y/y in June.
Although the greenback fell from 84.55 in Asia on cross buying in yen after the release of smaller-than-expected Australian trade surplus (Australian trade surplus shrank to A$1.89 billion in July from a revised A$3.44 billion in June) and dropped to 84.00 in Europe, dollar pared its losses and rose to 84.46 after the release of U.S. job and pending home sales data. Dollar then retreated from there on renewed selling before trading sideways.
U.S. weekly jobless claims fell to 472,000 (the economists’ forecast was 475,000) from upwardly revised 478,000 prior week. U.S. labor cost rose by 1.1% versus the forecast of a rise of 1.2% whilst productivity fell by 1.8% versus the expectations of a decrease of 1.9%. U.S. pending home sales index rose unexpectedly by 5.2% to 79.4 in July, suggesting a tax credit-related housing market decline was close to bottoming.
In addition, U.S. Fed Chairman Bernanke testified on Thursday and said that tough government follow-through on a freshly minted U.S. financial law would be crucial to ensure that no bank or firm grew so large that its collapse could jeopardize the entire economy.
In other news, Sandra Pianalto, President of the Federal Reserve Bank of Cleveland, said ‘the U.S. Federal Reserve feels a great sense of urgency in getting the housing market back on its feet and a healthy housing sector is critical both to the overall economy and to a sustainable economic recovery’.
The British pound edged lower in Asia on profit-taking after Wednesday’s rise from 1.5337 to 1.5492 and fell to 1.5373 in Europe on cross selling in sterling versus euro (eur/gbp surged from 0.8283 to 0.8348) after the release of weaker-than-expected U.K. housing data. Later, despite cable’s brief recovery to 1.5417, renewed selling interest at there sent sterling lower and it dropped to 1.5350 in NY before staging a recovery.
U.K. Nationwide house price dropped by 0.9%, weaker than the economists’ forecast of a decrease of 0.2%, whilst construction PMI came in at 52.1 versus the expectations of 53.2.
The market is focusing on U.S. non-farm payrolls which will be released at 12:30GMT on Friday, with expectations of falling in third straight month.
Economic data to be released on Friday include: Japan Business capex, Swiss CPI, Germany PMI service, EU PMI service, U.K. Services PMI, EU Retail sales, U.S. Unemployment rate, Avg. hourly earnings, ISM non-manufacturing.