A lack of new data or news saw markets run with previously established trends overnight. In Asia, equity markets were mixed as bargain hunting was balanced by Europe concerns. Asian trade also saw short-covering support local currencies, notably the PHP, SGD, and MYR. In Europe it was the same old story, and equities are generally softer on the day as newspaper headlines fail to give investors anything to be optimistic about. Peripheral euro zone country bond spreads widened as the German benchmark ten-year instrument fell to record lows. In commodities, a minor correction has seen copper steady itself at multi-month lows after recent losses. Gold has also bounced, up 1% overnight after recently hitting a four-month low.
The Dollar Index touched a four-month high overnight at 81.68. The moved seemed to follow the broader negative market sentiment that carried through from yesterday's New York session, where dovish FOMC minutes weighed on investor sentiment. The FOMC minutes were marked by an uncertain outlook and concerns that the momentum of economic recovery in the USA is fading; aggregate demand and unemployment in particular remain a concern. Despite this, the US economy is a beacon of light compared to the euro zone these days. News is surfacing that depositors have been pulling billions of euros out of Spanish and Greek banks, and recently elected officials in Athens have failed to form a functioning government. As a result, it's back to the polls for voters in Greece, and Spanish lawmakers have been forced to step in and nationalize Bankia to prevent its default. And finally, with the ousting of long-time Greece supporter Nicolas Sarkozy in recent French elections, look for the EU purse strings to get a little tighter... And that's just the last couple of weeks!
In these periods of uncertainty, the stability of a reliable monetary system and consistent political landscape are major assets.
The USD made its biggest gains overnight against the euro and the sterling, which touched their worst levels in four months and one month respectively. The Swiss franc and the Canadian dollar were also softer against the mighty Greenback overnight. However, off the charts, the rally in the Dollar Index over the last two weeks is starting to look overdone, and a correction could be in the cards. But more likely than not, this would be a house-cleaning-type correction, where traders trim open positions, and not a true reversal of sentiment.
US Weekly Jobless Number In Line with Expectations
The weekly American Unemployment report result matched the market consensus by printing a 370K reading this morning. Despite being in line with expectations, markets have not interpreted this as good news necessarily, as it actually confirms fears that hiring growth has slowed. The key factor underpinning this assumption is that gains seen earlier in the year were driven by a warmer-than-expected winter and that further gains will be hard fought. This morning's data further supports the FOMC comments yesterday and highlights the precarious state of the labour sector in the United States as well as the country's broader recovery.
In currencies, the themes that dominated the overnight session have largely continued to determine the North American morning's action, with the USD holding most of its overnight gains.