Intraday Market Thoughts

Gold Falls, China PMI Remains in Contraction

by Adam Button
Mar 1, 2012 3:11

It was the kind of day that truly only comes once every four years. It was a Leap Day to remember as the ECB pumped more than a half trillion euros into the system and Bernanke dropped a hint that QE3 may not materialize. CAD was the top performer while JPY lagged. China's official PMI was a revised lower, remaining in contraction territory. Our new Premium Trades for Thursday include AUDUSD, EURUSD, oil & gold.

Repeated EUR/USD efforts to break through 1.35 were rejected and market participants used the post-LTRO period to pile into fresh shorts, sinking the pair to 1.3330. Some havoc spread from the Treasury market as an apparent fat finger set off a wave of selling. The most extreme move was in gold as it tumbled below $1700 from $1790. Another notable move was USD/CAD falling to the lowest since Sept, in an evident breakout.

Bernanke continued to emphasize downside risks but was a shade less dovish than previously. He noted that unemployment has fallen faster than expected. US Q4 GDP was revised to +3.0% from +2.8%.The market is in the process of scaling down QE3 expectations.

Risk appetite improved after the Beige Book said growth increased at a modest to moderate pace in January and February, manufacturing is improving at a steady pace and consumer spending is generally positive. At the same time, wage pressures are contained.

The pound got a lift from the BOEs Weale who said there may not be a case for further QE and that high inflation may prompt a rate hike sooner than the market is anticipating.

Asia-Pacific Preview

Several lower tier indicators will be released early in the session but they are highly unlikely to jar the market. HSBC's China final PMI for February came in at 49.6, lower than the flash estimate of 49.7.

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