Optimism Grows on ISM Data

Risk assets rallied in the first true trading day of 2012. NZD and AUD were top performers with USD and JPY lagging. The date calendar for

the Asia-Pacific region on Wednesday is vacant.

The ISM manufacturing index rose to a six-month high of 53.9 from 52.7, beating the 53.2 consensus estimate. Sub-indexes for employment and new orders were strong. Unfortunately, similar indexes in Europe, China and the UK have been moving in the other direction.

EUR/USD squeezed higher to 1.3060 before US markets opened but subsequently fell back to 1.3011 just as US traders arrived at their desks. Afterwards, it was a slow march higher amidst the backdrop of positive risk appetite. The high of 1.3076 came after the FOMC minutes and was the highest since Dec 28.

The FOMC minutes announced that policymakers will make their own Fed funds rate forecasts public starting on Jan 25. The upcoming statement will include the forecast for Q4 and the next few calendar years.

The risk of such a move is that the Fed signals a longer timeframe before raising rates, a USD negative. The minutes also said conditions could warrant a further easing but noted improvement in the jobs market.

The S&P 500 gained 1.5% to 1277. Gold gained $38 to 1605/oz. Brent gained $5 to $112 and WTI climbed $4.20 to $103.

Adam Buitton