Sentiment Takes A Hit
02-08-2011
Talk of risk appetite was shortly lived on Monday as any optimism from a compromise emerging in Washington was quickly washed away by a bad ISM Manufacturing PMI result. The estimated outcome for the Manufacturing reading was 55.0, but unfortunately the mark turned out to be 50.9 - barely above what most economists consider to be a recessionary number. The Federal Reserve’s Manufacturing reports have been lackluster for a couple of months, thus yesterday’s ISM statistics only served to cement poor sentiment among investors who had already begun to take a grim view of the economy. Today the U.S. will release only Personal Spending data, but the employment numbers parade is not far off. The ADP Non Farm Employment Change stats are tomorrow, Thursday the weekly Unemployment Claims are on schedule, and Friday will climax the week supposedly with the official Non Farm results. What essentially has happened is that investors who have been worried about growth prospects had additional gloom thrown their way on Monday.
The USD picked up ground against the EUR and GBP yesterday. The JPY managed to range trade. The AUD has come off of its highs. Wall Street which was called to start the day higher based on some positive sentiment emerging from the weekend framework in Washington saw those hopes dashed quickly as the ISM Manufacturing PMI report became known. Questions about global growth will now continue to mount and concerns remain about the U.S. debt situation regarding its rating, not to mention the European Sovereign Debt Crisis which has certainly not disappeared. Based on the results Monday with data from the U.S., risk adverse trading grew in force, Wall Street which has struggled for a couple of months came under increased pressure and this may have dashed hopes for a summer rally.
Even as the Forex markets have proven swift what should be of critical interest for traders is that the major pairs continue to move within known ranges. The one currency that continues to stand out as a safe haven play is the CHF which is still attracting participants who seek a flight to quality. Gold as of this morning is around 1624.13 USD. After coming off of its highs in early trading on Monday, the precious metal has climbed steadily back towards its stronger values. As the debate continues to rage about growth prospects versus those who see storm clouds on the horizon it can be expected that Gold will draw plenty of attention.
The Game of Confidence that governments and their officials have been playing for sometime has not exactly gone their way the past week. The U.S. politicians didn’t help the matter, and talk about potential growth is now being met by skepticism. European politicians have not fared any better and still face major hurdles to find a solution to the problems that exists for the likes of Greece, Ireland, Portugal, Spain, and Italy – which is not a short list.
This week is likely to remain a minefield and traders will have to remain alert for data, political announcements, and financial news which emerge. The BoE and ECB will be meeting on Thursday and the torrent of jobless data from the States looms near term too. Opportunities will prevail for traders who apply systematic risk management as they position themselves.
