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Round Up – German Bunds, Euro, China & Argentina

James Boston
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The yield on the benchmark 10 year German government bond continues to fall as confidence in this core European economy grows, yields have fallen 7 points this week to 1.68%, a level not seen for 3 months. An affirmation of the countries AAA status by Standard and Poor’s earlier this month is seen as having been the catalyst for the recent spree of Bund buying, backed up by gradually improving fundamentals.

The Euro tested 1.37 against the Dollar overnight and with a light economic release agenda today, with the exception of some minor figures from Italy and Spain, it is hard to see where the momentum will come from to push the single currency through this figure before the weekend. On the contrary, the Euro is marginally lower against GBP this morning, the most probable cause of this is speculative Sterling positioning ahead of the Bank of England Governor’s speech at Davos later today, reports are indicating that Governor Carney will not rule out interest rate hikes this year.

Weak manufacturing figures out of China overnight have contributed to a nervous undertone in the markets this morning, the HSBC PMI figure of 49.6 is the lowest in 6 months, more concerning however is that this has now drifted below 50, a number that indicates that manufacturing has slipped into contraction. The Hang Seng closed almost 1% lower while the Nikkei shed almost 2% as investors tended toward the relative safety of Gold and US benchmark bonds. China’s hiccup cast a little doubt on the global recovery situation, as a result commodity based currencies suffered a sell off, the main casualty being the Argentine Peso which suffered it’s steepest decline since the countries 2002 financial crises. It looks very much like the central bank has given up attempts to support the Peso, this situation warrants close watching over the coming days.

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