Another wave of optimism with respect to the global economy is underpinning market sentiment this morning. Stocks have risen across the board in Asia and in Europe, the USD has softened vs the EUR, JPY and GBP. The AUD and the NZD have posted substantial gains vs the USD.
Stronger than expected Japanese April industrial production data provided an early sweetener. Production rose at 5.2% m/m, the biggest monthly gain since 1953. The strength of this data has been tainted by scepticism that it had been underpinned by government stimulus. However, with the rise in production coming on the heels of this week's better than expected Japanese April export data, there is some optimism that the recessionary pressures could be easing in Japan.
Also lifting the tone was the release of better than expected Indian Q1 GDP. This rose by 5.8% y/y which further boosted optimism triggered recently by the Indian election results. Going forward higher oil prices will be a threat to improved sentiment particularly within emerging markets. This morning higher commodities prices translated into a significant boost both for the AUD and the NZD. The rally in AUD/USD now has 0.80 in its sights. USD/NZD is surging towards the 0.6350 area. USD/JPY has softened consolidating some of this week's aggressive rise.
Sterling has also been lifted this morning. Given this morning's upside in EUR/USD, modest gains for the pound vs the EUR have translated into a leap in cable to the USD1.6130 area. The better than expected release of the May Nationwide house price index (+1.2% m/m) provided the incentive for the pound's better tone. Once again sterling's sensitivity to better news implies the market is still holding short positions. The outlook for EUR/GBP will be more illustrative of the market's appetite for the pound next week particularly given that both the ECB and BoE policy meetings are due. The release of the slightly softer than expected May Eurozone CPI data at 0.8% y/y this morning may to translate to an extension of the dovish tone from the ECB next week. The ECB's rhetoric next week could be influence the ability of the EUR/USD to maintain its upside bias near-term.
This afternoon focus will be on provisional US GDP data. Chicago PMI and final University of Michigan sentiment data are also due.
