20130905

Good morning,

Markets were overall positive yesterday on back of solid PMI figures from the Euro zone and the UK, with British new orders rising at their fastest pace since 1997. In the US,  strong Auto Sales and a decent Beige Book too focus away from a somewhat weaker than expected trade balance, supporting risk taking despite the geo-political tensions regarding the situation in Syria. The situation will still be a focal point for the market, as the US Senate Committee on Foreign Relations yesterday authorised a limited military operation.

Stock markets increased more or less across the board with Euro Stoxx 50 up 0.2% to 2,758 and S&P up 0.8% to 1653, closing above the 100-day SMA. Fixed income sold off as market players positioned themselves towards more risky assets as well as profit taking ahead of the key events coming up at the end of this week.

In FX markets, this materialised particularly in a weaker JPY and the US Dollar also sold off decently. This morning USD/JPY has tested the 100-level again, but has so far been met with decent offers. The weaker US Dollar sent USD/CHF on the offer, but overnight, the pair has been coming back with a vengeance, testing the 0.94-figure and 100-day SMA - the latter for the first time since mid July. A close above would open up for a test of 0.9440. EUR/USD experienced it#s first positive day in six yesterday playing with the 50-, 100-, and 200-day SMAs, with the 100-day at 1.3138 acting as key support.

Overnight, the Bank of Japan upgraded their assessment of the economy and expanded their monetary base to a yearly 70 trillion JPY versus 60 trillion prior. This was expected by the market, so no real reaction in the JPY. Interest rates were kept unchanged at 0.1% as expected. Consumer Prices rose the most in five years, primarily as a result of increasing energy costs, but also showing that the efforts to stimulate the economy and reach the inflation target of 2% is starting to improve. However, we still have to see if Abenomics will work the second time round. EUR/JPY testing trend resistance projected from 2013 highs and a break above could trigger stops from 132.70 towards a re-test of 2013 highs.

Today, the market will be focusing on monetary policy announcements from the UK and the Euro Zone.  At 11:GMT, the BoE will hit the wires with the announcement of interest rates and their decision on asset purchases. In light of the recent initiation of Carney, we don't expect any changes in these figures as the unemployment, which is linked to the forward rate guidance has not changed significantly. GBP pairs should be supported from yesterday's PMI figures, but there could be downside, should the BoE be more dovish than anticipated.

From the Euro Zone, the ECB President Draghi will announce the interest rates at 11:45GMT, where we expect an unchanged rate at 0.5%. The main focus will as always be on the Press Conference to follow at 12:30GMT, and it will be interesting to see if Draghi will make the Euro sell off as per tradition, when the ECB are on the wires. We don't expect any changes on the monetary front, but as a result of the gradually improving figures from the Euro zone, we could see some positive revisions of growth and inflation figures.

On the macro side, we also  the German Factory Orders for July at 10:00 GMT. Consensus is at at -1.0% vs. +3.6% in June, which was mainly attributed to the airline industry. From the US, the ADP (the proxy for tomorrow's Nonfarm Payrolls) will be interesting (exp at 182k vs. 199.7k prior) and the ISM Service index could be a late market mover at 14:00 GMT (exp at 55 vs. 56 prior - a figure above 50 indicates expansion.)

Have a great day.