Market Review – 01/06/2011 21:24 GMT
Euro falls sharply after Moody’s downgrade on Greece and a 2.2% drop in the Dow
The single currency fell from four-week high of 1.4459 and tumbled to as low as 1.4321 after Moody’s downgraded Greece’s credit rating by three notches from B1 to extremely speculative level of CAA1, seven notches into junk territory.
Moody’s said ‘Greece downgrade reflects increasing risk it will fail to stabilize debt position without restructuring’. Moody’s also said ‘Greece downgrade reflects rising likelihood International Monetary Fund, European Central Bank, European Union will require private creditors in restructuring for more funding; these risks imply at least an even chance of default over the rating horizon.’
Earlier in the day, despite falling from 1.4448 to 1.4384 in European morning, euro ratcheted higher and touched a four-week high of 1.4459 in New York morning after the release of much-weaker-than-expected U.S. ADP employment data before retreating sharply in New York afternoon on broad-based selling due to risk aversion after Moody’s downgrade of Greece as well as a sharp fall in the Dow. Euro reached a session low of 1.4321. Eur/jpy tumbled sharply from 117.72 to 115.88.
The British pound ratcheted higher in Asian morning and later reached a session high of 1.6496 in European morning before tumbling sharply partly due to cross-selling of sterling versus euro after the release of weaker-than-expected U.K. manufacturing PMI in May. Cable continued to move lower and eventually tanked to an intra-day low of 1.6331 in New York afternoon.
The Swiss franc strengthened across the board against the greenback and euro after the release of stronger-than-expected Swiss PMI data in May. Usd/chf and eur/chf tumbled sharply from 0.8544 and 1.2319 to fresh record lows of 0.8383 and 1.2058 respectively.
Versus the greenback, the Japanese yen rose after the release of weak U.S. ADP employment data and usd/jpy reached a session low of 80.66 in New York morning before stabilising.
Standard & Poor’s 500 Index dropped sharply and plunged 2.3% on Wednesday. Dow Jones Industrial Index also plunged 2.2% (279 points), the biggest drop since August 2010 due to weaker-than-expected U.S. economic data.
On the data front, Chinese PMI for manufacturing sector in May came in at 52.0 versus street forecast of 51.6. Swiss PMI in May came in at 59.2 versus economists’ forecast of 58.0 and previous reading of 58.4. U.K. manufacturing PMI in May came in at 52.1, the lowest since September 2009, versus the forecast of 54.1 and downwardly revised reading of 54.4 in April. U.S. private employers added 38,000 jobs in May, the lowest level since September 2010, far below economists’ forecast of 175,000 jobs added. U.S. ISM manufacturing in May came in at 53.5, the biggest one month fall in over 25 years.
Data to be released on Thursday include:
Japan business capital expenditure; Australia retail sales and trade balance; U.K. PMI construction; U.S. jobless claims, durable goods (revised) and factory orders.