The long holiday weekend has ended and investors will be forced to look at a rather gruesome plate of realities. China’s PMI Manufacturing reading missed its estimate on early Monday morning, which happened to followup a poor outcome from Japan’s Tankan Manufacturing Index. Yesterday the U.S. added to the snowball effect when its Manufacturing PMI marks proved disappointing. This morning as investors began returning to their offices they have been greeted by additionally troublesome results from the U.K.’s Manufacturing PMI which turned in a 48.3 number compared to the estimate of 48.9. And putting an exclamation point on the sad song has been the withering sums from Spain and Italy also today. The bad PMI results highlight that Europe, including the U.K., are smothered by recession and worse, and that Asia is having a hard time achieving growth, and the U.S. is still facing headwinds.
In early trading thus far Tuesday the EUR remains near its low water marks, and as American offices begin opening for business the Single Currency/Greenback cross will remain under a long shadow. The ECB will hold its monetary policy press conference on Thursday, the BOE will also be issuing its monthly policy, and both central banks will be under the microscope. ECB President Mario Draghi had better start practicing answers regarding the health of the EUR, the prospects of growth for Europe, and the possibility that the E.U. politically seemingly wants to contract. While Cyprus has not been kicked out of the E.U. and most political entities and their designates far and wide say that this will not be the case, there can be no denying that the actions from the past two weeks in the E.U. show a reluctant and aggressive Germany regarding policy. The Cyprus bailout and its banking crisis are far from resolved and the implications are still unknown in many respects, except to say that Cyprus as an off-shore banking enclave now sees its reputation and core financial infrastructure in tatters.
The EUR can thank the ECB and its actions along with the Federal Reserve’s need to keep the USD weak as reasons for its rather remarkable ability to hold onto value these past nine months. However, the situation from Europe is not improving financially or politically and Cyprus is merely one of the first cards in the deck to have been dealt. Spain and Italy continue to face ugly scenarios and all of Silvio Berlusconi’s plastic surgery team will not be enough to make the European crisis look any better.
The GBP finds itself at short-term highs against the USD. And the JPY is near short-term highs also against the Greenback. With full volume only returning to the Forex markets today after Friday’s and Monday’s light sessions expect to see plenty of action in FX, even if traders would prefer peace and quiet until the central banks have gotten into the act later this week.
Gold is hovering near 1600.00 USD and its consolidation should scare investors at this juncture. With so many questions pertaining to the health of fiat currencies, and what look like artificially high values in the equity markets, Gold may find volatility sooner rather than later.
If all of the prospects above are not enough to give traders reasons for being cautious, they should also kindly note that on Friday the Non-Farm Employment Change numbers will be published from the States. Tomorrow the job data statistics will begin to ebb with the ADP results.