Investors’ appetite to equities still not finding its way on the third trading day of the year as negative data continued to flow from China and North Korea just adding to the geopolitical tensions.
China’s services sector provided further indication that the economy lost steam towards end of 2015 as Caixin/Markit purchasing manager’s index dropped to 50.2 in December. Although a reading above 50 still shows growth, the activity in services sector, which considered the bright spot in the economy, is at lowest levels since July 2014.
North Korea confirmed testing a hydrogen bomb earlier today, a move that dramatically worsens tensions with neighbors, mainly South Korea, Japan and China. The main beneficiary was the Japanese Yen, which traded higher against all major counterparts testing a new 2 and half month high against the USD and 14 month high against the cable.
Short USDJPY was the preferred trade, getting closer to test a major support level around 118. If China continued to provide negative economic indicators, Japanese policy makers resist announcing further easing measures and geopolitical tensions carried on, then JPY will continue to be the favorite long trade. Moreover, a break below 118 would lead to further drop with only major support standing at 24 Aug low at 116.46.
The EURUSD suffered heavy losses yesterday testing 1.0709 before recovering slightly after data showed Eurozone core inflation slowed for a second straight month in December. With no tier-one economic data due to release, market participants will be watching PMI figures to assess the health of the services sector. If figures do beat market expectations than the EUR could consolidate within 1.07 – 1.08 levels, otherwise the single currency could open the way to visit Decembers low at 1.0538.
Today’s U.S. data is key for U.S. bulls, as ADP jobs and ISM non-manufacturing reports will provide some indications on how Fridays Non-farm payrolls could look like. On the other side FOMC minutes will be released, and it is important to assess whether policy makers have a clear trajectory on the pace of tightening after they increases interest rates for the first time in a decade.
Oil prices still on the radar as Brent crude approached 11-years low tested in December. The over supplied market and rising inventory levels continued to outweigh tensions between Saudi Arabia and Iran, and as long as traders not worried about supply disruption, spot lights will be on the release of EIA’s inventory data tonight. For the past couple of months inventory figures were very volatile and for Brent to break below $36 strong additions to the stockpiles is required.