Archived IMT (2011.04.05)

US Roundup & Asia Preview. A drop in the ISM non-manufacturing index trumped a more hawkish tilt in the FOMC minutes in Tuesdays North American session. Following the service sector report, the dollar weakened, gold hit a record $1455 and silver neared $40. The pound was the top gainer on Tuesday while the yen lagged. U.S. stocks were flat for the second consecutive day. The pound surged as the UK service sector PMI jumped to a 13-month high of 57.1 from 52.6 (Exp: 52.9). GBP/JPY climbed more than 200 pips to above 138 and the pair has gained nearly 800 pips since March 28. The rates market is now pricing in a 10% chance of a BOE hike on Thursday. The U.S. service sector PMI headed in the other direction as the ISM non-manufacturing index fell to 57.3 from 59.7 (Exp: 59.5). The drop overshadowed the FOMC minutes where the main developments were: 1) the GDP forecast was revised down modestly due to higher oil prices 2) The FOMC appeared more divided as a few participants indicated that conditions might warrant less accommodative policy this year. 3) Similarly, a few members said it could be appropriate to scale back QE2. 4) Forecasts for inflation "shifted somewhat to the upside." 5) The overall stance of the FOMC was broadly unchanged.

THE ASIA PACIFIC SESSION features second-tier data in the form of Australian home loans (Exp: -2.6%) and Japans leading index (Exp: 104.2). The market will continue to digest Chinas rate hike and we may see some risk aversion on worries about slower global growth. The Bank of Japan begins its two-day meeting and policymakers are under pressure to take further action after injecting 37 trillion and doubling the size of its asset-purchase program to 10 trillion in the aftermath of the disaster. Further measures to boost liquidity (not likely), underwrite reconstruction bonds (very unlikely) or ease access to credit for affected companies/areas (likely) will weigh on JPY. On Tuesday, USD/JPY rallied to the highest since Sept. 23, 2010 and the daily RSI is at its highest levels since the pair peaked near 95.00 in April/May of 2010. EUR/JPY is at the highest in 11 months.

By AB - AshrafLaidi.com staff.