Article Highlights

  • Crisis grows in emerging markets
  • British Pound falls on Carney speech
  • Canadian CPI m/m: inline with forecast at -0.2%, y/y down to 1.2% vs. 1.3% forecast
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It seems that yesterday’s weak manufacturing data in China sparked off a big risk aversion move in the emerging markets.  Traders are now concerned about the sustainability of these developing economies without the support of the Fed’s quantitative easing measures.  Emerging market currencies–like the Argentina peso, Turkish lira, South African rand, and others–have taken big hits in the last couple of sessions, and among the majors, the Aussie continues to take the brunt of the selling.  The AUD/USD is down -0.63% to .8700 and the AUD/JPY is down a big -1.31% to around 89.35.  This is also partly due to RBA jawboning from board member Heather Ridout that 80 cents would be a fair deal.

With risk aversion behavior now dominating sentiment, global equity markets are taking a big hit (Nikkei down the most at -1.94%) while the U.S. dollar and the Japanese yen seems to be the big beneficiaries. The U.S. Dollar index is up 0.23%.  Gold is up +0.38% on the session as well.

Outside of emerging currencies, Sterling was a big mover on the day thanks to Bank of England Governor Carney’s speech in Davos.  He commented on how the British pound’s strength may hurt exports and that interest rates would remain low to help support the economy.  The latter conflicts with previous forward guidance from the BOE that they would raise rates when 7.0% unemployment was reached; this week the unemployment rate reach 7.1%.  The pound sold off against the majors, down around 100 pips (-0.60%) against the Greenback to test 1.6500 since the speech and down -0.65% against the euro to .8285 on the session.

We just got CPI data from Canada, which was mostly inline with expectations.  The year-over-year number is lower than forecast, but above the previous read of 0.9%.  USD/CAD briefly rallied on the data before declining to current levels around 1.1065.

No major data releases for the rest of the session, but ECB President Mario Draghi will be a part of a panel discussion at the World Economic Forum in Davos.  This is not usually a market making event, but as we saw with BOE Governor Carney’s comments, it has the potential to spark a good amount of volatility when the right things are said on monetary policy.  Stay frosty!

See also:

Asian Session Recap

U.S. Session Recap

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