USD makes strong gains while stocks bounce after early weakness

Summary:

• US dollar pushes higher ahead of Congress meeting

• NZDUSD threatening to break lower desiter supportive data

• Unexpected rise in UK PMI doesn’t brighten wider outlook

• Stocks attempt to recover after beginning softly

• DE30: Telecoms sue German regulator

The US dollar has reversed all its earlier losses and has entered a positive territory during European trading hours. At the same time, the US 10Y yield has moved back to below 2.65% mirroring a higher demand for safe haven assets. Investors are impatiently awaiting the US Congress meeting scheduled for Wednesday as both chambers are returning from a New Year’s Day break. This will be an important convention given that Democrats will take control of the House on Thursday.

There’s been a potentially significant push lower in the NZDUSD today, with the pair falling down to trade at levels not seen since the start of November. The cross first declined overnight after the soft Chinese manufacturing data with the Caixin PMI for December falling below 50 to indicate a contraction for the first time since May 2017. These declines were bought however and the market was actually fractionally higher around the time of the European open but since the some broad strength in the greenback has seen price fall firmly lower. There has been a little bounce this afternoon following a soft reading in the latest look at the US manufacturing sector and some positive data for the Kiwi.

The gauge for UK manufacturing increased to 54.2 from 53.6 (the upward revision from 53.1) last month easily beating the market consensus of 52.5. The data shows that the UK manufacturing sector has been resilient to the widespread slowdown in other European countries. However, the last month’s rise seems to have weak foundations as it was steered predominantly by firms’ fears over a potentially disruptive Brexit.

It’s been a soft start to the New Year for equities with a sea of red seen across Asian and European stock markets while US futures were trading heavily lower ahead of the opening bell. Disappointing manufacturing data from China has done little to help sentiment and after a strong rally at the tail-end of 2018 the markets have begun 2019 back under pressure. There has been a recovery into the European cash close however, with the markets bouncing fairly strongly off their lows while Oil has boosted sentiment as it reversed to trade firmly higher after earlier being down by over 2%.  

Deutsche Telekom (DTE.DE) followed into footsteps of Vodafone (VOD.UK) and Telefonica (TEF1.ES) and sued Germany over the frequency auctions. According to telecoms rules applying auctions are so tough that they outweigh value of product being sold. Companies argue that such situation delays the adoption of 5G technology in Europe and in turn limits their profits. Deutsche Telekom spokesman, Andreas Middel, claimed that the rules “go far beyond the limit of what is reasonable” while Vodafone argued that tender rules make initial investment almost impossible to recoup.