Intraday Market Thoughts

Falling German Sales Add to Euros Sub 1.29 Drop

by Patrik Urban
Jan 5, 2012 12:47

German retail sales dropped; Eurozone industrial orders rose and PPI declined; UK PMI hit 5-month high; French bond auction saw lower bid to cover ratios. Market turns to ADP, jobless claims and ISM non-manufacturing. Canadian data will include RMPI and Ivey PMI. Ashrafs Thursday Intermarket Insights will be posted at the open of the US stocks session.

The greenback is higher against all majors in the ongoing session. The biggest relative strength losers are NZD and AUD. Major European equity indices are lower by 1% to 2.1%.

EURUSD fell sharply after German retail sales declined -0.9% in November from previous -0.2% which is considerably below market expectations of 0.2% growth. Eurozone industrial orders that rose 1.8% in October after declining -6.4% in September (1.6% y/y) were not able to stop common currency's decline as it slid to a low at 1.2830. Eurozone November PPI declined to 5.3% from 5.5% y/y indicating that even consumer inflation should continue to slow and come closer to ECB's 2% target.

UK PMI services rose to a five months high at 54.0 in December from 52.1 which is significantly above expectations of 51.6. The business expectations component fell to 63.5 from 67.4 but activity and new work both increased at the fastest pace since July. The improvement in both manufacturing and services PMI reduces the probability of an increase of the Asset Purchase Facility. The MPC meets next Thursday. EURGBP dropped to 0.8253, lowest since September 2010.

France sold EUR 7.963 bln (EUR 7-8 bln target) worth of bonds with various maturities today. The largest auction, EUR 4.02 bln 2021 OAT resulted in a slightly higher yield 3.29% from 3.18% and bid to cover was 1.64, considerably below previous 3.05.

The New York session starts at 8:15 am ET with ADP report that is anticipated to decline in December to 176K from previous 206K followed by jobless claims at 8:30 am that are seen lower at 375K from previous 381K. Today's ADP is likely to have a larger impact than usual as traders will look for hints on the first 2012 NFP release that is due tomorrow.

ISM non-manufacturing due at 10:00 am is expected to rise in December to 53 from November's 52.

Canadian data include raw materials price index at 8:30 am seen at 0.1% in November after contracting -1.2% in October followed by Ivey PMI at 10:00 am expected to decline slightly to 57.5 from 59.9.


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