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USD UNDER PRESSURE AS US SERVICES SECTOR CONTRACTED FOR FIRST TIME SINCE OCT. 2013, MEXICO: PESO’S WEAKNESS IS NOT OVER

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USD UNDER PRESSURE AS US SERVICES SECTOR CONTRACTED FOR FIRST TIME SINCE OCT. 2013, MEXICO: PESO’S WEAKNESS IS NOT OVER
  • PMI weak release reinforces our view that the US economy is experiencing a slowdown although we do not believe yet that it is on the edge of a recession as it could be just a temporary setback
  • EUR/USD 1.0965-1.0977 levels should continue to support it while on the upside, a first resistance can be found at 1.1050 then at 1.1150
  • USD/JPY should remain above 111 as the market cannot find any good reason to send the yen higher; after all the BoJ is still expected to further ease its monetary policy.
  • In Australia, expected annual private capital expenditure fell sharply, reaching the lowest level in nine years as Australian non-mining companies cut spending unexpectedly
  • The Mexican peso keeps struggling with crude oil at its record low, it seems obvious that Mexico must find another source of revenue as investments on oil have sharply declined
  • Today’s data, current account balance, will be released and is set to remain in deficit at around 8 billion dollar. We are clearly bullish on the USDMXN which should head back towards 19.00

The release of disappointing US data on Wednesday helped EUR/USD to stabilise above the 1.10 threshold. Market services PMI fell below the 50 mark, which indicates that the sector contracted compared to the previous month, as it printed at 49.8 versus 53.5 previous reading and median forecast. This is the first time in more than two years that the sector shrank. It was a close call for the Composite PMI as it printed just above the 50 mark at 50.1, down from 53.2 in January. This weak release reinforces our view that the US economy is experiencing a slowdown as the global demand remains subdued and uncertainty about the outlook keeps rising. However, we do not believe yet that the US economy is on the edge of a recession as it could be just a temporary setback. From a technical standpoint, the 1.0965-1.0977 levels (Fibonacci 67.8% on Jan.-Feb rally and 50dma) should continue to support EUR/USD. On the upside, a first resistance can be found at 1.1050 (previous high and Fibo. 50%), then a second one lies at 1.1150.

USD/JPY rose 0.64% in the early Asian session before returning quickly to 112 global sentiment struggles to take-off. On Wednesday, the pair tested the 111 support for the first time since February 11th. The pair should remain above that level as the market cannot find any good reason to send the yen higher; after all the BoJ is still expected to further ease its monetary policy. On the upside, a resistance lies at 133.39 (high from February 22nd), then 114.87 (high from February 16th).

Crude oil prices fell slightly overnight after surging roughly 6% in Wall Street. The West Texas Intermediate was off 0.78%, to $31.90 a barrel, while its counterpart from the North Sea, the Brent crude, fell 0.58% to $34.21.

In Australia, expected annual private capital expenditure fell sharply, reaching the lowest level in nine years as Australian non-mining companies cut spending unexpectedly. As a result, the Australian was sold-off in Sydney with AUD/USD falling 0.20% to 0.7160. We would be surprised if the pair returned to January’s lows at around 0.6850.

On the equity market, most of Asian regional markets followed Wall Street’s weak positive lead – the S&P 500 was up 0.44%, the Nasdaq 0.87% and the Dow Jones 0.32%. However, mainland Chinese equities were trading massively lower after surging more than 10% since the end of January. The Shanghai and Shenzhen Composite fell 6.41% and 7.34% overnight, while offshore Hong Kong’s Hang Seng slid 1.64%. Elsewhere, equities were broadly trading in positive territory with Japanese shares rising more than 1% – Nikkei was up 1.41% and the Topix jumped 1.79% – while Taiwan’s Taiex surged 1%. In Europe, equity futures are pointing toward a higher open as the positive mood spreads. US futures are mixed.

***Yann Quelenn, market analyst: “Mexico: Peso’s weakness is not over: The Mexican peso keeps struggling as it went from below 15 peso for one single dollar note early 2015 to above 19 a few days ago.  Lingering oil prices have contributed to weakening the currency as less revenues come from oil but it is also true that the share of total government revenue from the commodity has declined, over the past twelve years, by one third to 20% from 34%. We firmly believe that there is one specific reason for this. Mexican’s infrastructure to produce oil and the state-owned companies have not been able to make sufficient investments which has prevented Mexico from gaining competitiveness over the past decade. Now that crude oil is at record low, it seems obvious that Mexico must find another sources of revenue as investments on oil have sharply declined.

Today’s data, current account balance, will be released and is set to remain in deficit at around 8 billion dollar. Export revenues are clearly not sufficient to offset import needs. As a result, CPI jumped to 10-month high in early February. Last but not least, retail sales decreased strongly in December at -1.6% m/m from 0.5% in November. We are clearly bullish on the USDMXN which should head back towards 19.00.”***

Today traders will be watching PPI and GDP from Spain; industrial output from Switzerland; PPI from Sweden; business confidence and retail sales from Italy; PPI from South Africa; private consumption, government spending, export, import and business investment from UK; CPI from the euro zone; unemployment rate and tax collection from Brazil; CPI and gold & Forex reserve from Russia; initial jobless claims, durable goods orders; FHFA house price; trade balance from New Zealand (in the evening).

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Energy stocks drag down FTSE 100, IG Group slides

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Energy stocks drag down FTSE 100, IG Group slides 1

By Shivani Kumaresan

(Reuters) – London’s FTSE 100 slipped on Thursday, weighed down by falls in energy stocks as oil prices slid after a surprise increase in U.S. crude inventories, while IG Group tumbled on plans to buy U.S. trading platform tastytrade for $1 billion.

The blue-chip FTSE 100 index lost 0.4%, while the domestically focussed mid-cap FTSE 250 index also slid 0.4%.

Energy majors BP and Royal Dutch Shell fell 3.2% and 2.5%, respectively, and were the biggest drags on the FTSE-100 index. [O/R]

“What is holding back the UK is a lack of tech stocks to capture the ‘rotation’ back into tech seen since Netflix results,” said Chris Beauchamp, chief market analyst at IG.

“Stock markets overall are much quieter today, looking so far in vain for a new catalyst for further upside.”

The FTSE 100 shed 14.3% in value last year, its worst performance since a 31% plunge in 2008 and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy and led to mass layoffs.

British Prime Minister Boris Johnson said it was too early to say when the national coronavirus lockdown in England would end, as daily deaths from COVID-19 reach new highs and hospitals become increasingly stretched.

IG Group tumbled 8.5% after announcing plans to buy tastytrade, venturing into North America after a stellar year for the new breed of retail investment brokerages.

Ibstock jumped 7.3% to the top of the FTSE 250 after the company said fourth-quarter activity benefited from better-than-expected demand for new houses and repairs.

Pets at Home Group Plc rose 2.2% after reporting an 18% jump in third-quarter revenue, boosted by higher demand for its accessories and veterinary services as more people adopted pets during lockdowns.

(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V and Mark Potter)

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Wall Street bounce, upbeat earnings lift European stocks

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Wall Street bounce, upbeat earnings lift European stocks 2

By Amal S and Sruthi Shankar

(Reuters) – European stocks rose on Wednesday after Dutch chip equipment maker ASML and Swiss luxury group Richemont gave encouraging earnings updates, while investors hoped for a large U.S. stimulus plan as Joe Biden was sworn in as president.

The pan-European STOXX 600 index closed 0.7% higher, getting an extra boost as Wall Street marked record highs.

All eyes were on Biden’s inauguration as the 46th U.S. President, with traders betting on a bigger pandemic relief plan and higher infrastructure spending under the new administration to boost the pandemic-stricken economy.

Tech stocks rallied to a two-decade peak in Europe after ASML Holding NV rose 3.0% to all-time highs on better-than-expected quarterly sales and a strong order intake for 2021.

Meanwhile, Richemont rose 2.8%, after posting a 5% increase in quarterly sales as Chinese splashed out on Cartier, its flagship jewellery brand.

Britain’s Burberry jumped 3.9% after it stuck to its full-year goals, saying higher full-price sales would boost annual margins, while Asian demand remained strong.

The pair boosted European luxury goods makers that are heavily reliant on China, with LVMH and Kering gaining between 1% and 3%.

“Any sign that retail spending is picking up in China is going to be a boost to the Western markets and those heavily exposed to it,” said Connor Campbell, financial analyst at SpreadEx.

The European Central Bank is set to meet on Thursday. While no policy changes are expected, the bank could face more questions about an increasingly challenging outlook only a month after it unleashed fresh stimulus to bolster the euro zone economy.

“With the new round of easing measures fully in place and no new forecasts to be presented tomorrow, it should be a fairly uneventful day for the euro,” ING analysts said in a note.

Italy’s FTSE MIB gained 0.9% and lenders rose 1.6% after Prime Minister Giuseppe Conte won a confidence vote in the upper house Senate and averted a government collapse.

Conte narrowly secured the vote on Tuesday, allowing him to remain in office after a junior partner quit his coalition last week in the midst of the COVID-19 pandemic.

Daimler AG jumped 4.2% after its Mercedes-Benz brand unveiled a new electric compact SUV, the EQA, as part of plans to take on rival Tesla Inc.

Germany’s Hugo Boss added 4.4% after Mike Ashley-led Frasers said it boosted its stake in the company.

(Reporting by Sruthi Shankar and Amal S in Bengaluru; Editing by Shailesh Kuber and Arun Koyyur and Kirsten Donovan)

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Miners lead FTSE 100 higher on earnings cheer

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Miners lead FTSE 100 higher on earnings cheer 3

By Shivani Kumaresan

(Reuters) – UK’s FTSE 100 rose on Wednesday as miners gained after a strong production forecast from BHP Group, while encouraging updates from luxury brand Burberry and education group Pearson drove optimism about the earnings season.

BHP Group Ltd climbed 2.8% after it forecast record iron ore production for fiscal 2021, helped by high prices for the commodity. Other miners Rio Tinto, Anglo American and Glencore rose more than 2%.

Global markets rallied in anticipation of more fiscal spending as Joe Biden prepared to take charge as the 46th U.S. president.

“There is a view in the markets that more spending is in the pipeline, after all, Mr Biden will want to start his presidency on a positive note,” said David Madden, market analyst at CMC Markets UK.

The FTSE 100 index rose 0.4% and the domestically focussed FTSE 250 index added 1.4%.

The FTSE 100 has recorded consistent monthly gains since November after the sealing of a Brexit trade deal and hopes of a vaccine-led economic recovery, but has recently lost steam as tighter business restrictions sparked fears of a slow rebound.

Burberry rose 3.9% as it stuck to its full-year goals and said higher full-price sales would boost annual margins and Asian demand remained strong.

Global education group Pearson jumped 8.6% after its global online sales grew 18% in 2020, helped by strong enrolments in virtual schools.

WH Smith Plc surged 10.4% to the top of the FTSE 250 index as its trading during Christmas was ahead of its expectations.

(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V, William Maclean)

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