USD strength continues in spite of better than expected European and UK data

Yesterday’s market action

Yesterday saw the end of quarter and also the continuation of the S&P 500’s gains, now standing at a whopping 9 straight quarters of growth. This was almost not to be as profit-taking drove the index lower into the end of the US session and, although we closed higher on the quarter, we finished lower on the day. Yesterday’s session saw a muted gain in the Chicago PMI for the month of March, even though we saw a beat of the low printed in February. The Consumer Confidence numbers for March we also saw a gain to 101.3, just shy of the 8 year high seen in January’s print. Yesterday also saw a continuation of the trend towards dollar strength, the Dollar Index up 0.39% on the week. Fed’s Lacker continued his hawkish rhetoric, suggesting that a June rate hike was on the card as long as data remains strong, as well as stressing the data-dependent rate of change.

Today’s View

This morning saw the release of a series of estimate beating prints from Europe, specifically the manufacturing PMIs. There were, for the first time in many months, outperformances from France, Spain and Italy. This mirrored the slight uptick in Chinese manufacturing with both the HSBC Manufacturing number and the Chinese PMI both exceeding expectations. This has helped equities lift from their lows after the profit-taking move to the downside, allowing European and US bourses to make major gains on the day. This has also been fuelled by positive noises coming out of Greek-Europe talks; although Merkel and Hollande both reiterated the importance of Greek timeliness in their delivery of further austerity measures, the majority of market participants have maintained a positive outlook on the situation. Looking ahead at today’s releases we see MBA Mortgage Applications, ADP Employment Change, expected at 225k, the US Manufacturing PMI and also Construction spending and ISM Manufacturing. The clearest move is likely to be seen in the US dollar and, if bearish, the US 10Yr. We also have Department of Energy Oil figures being released, expected at 4500k barrels. ADP inventories last night posted a buikd of 5200k against an expected 4800k; this has continued crude’s descent lower with the May future taking a glancing hit at the $47 handle this morning. This afternoon gasoline inventories have downside potential as prices at the pumps have allowed for higher purchasing power from US consumers. Traders are recommended to be aware of this and that the release is unlikely to be as clean as we have seen in recent months.