The Ukraine situation dominates the headlines and pundits have been detailing the worst case scenario. Financial markets on the other hand seem to have overcome the initial risk-off reaction we saw yesterday and some of the moves into safe havens and out of risk assets have been reversed overnight. The Yen has given back much of its gains, as has gold which has fallen some $15 and indices look set to bounce this morning. The markets seem to be normalising fallowing the knee-jerk reaction yesterday and investors will be focusing again on what’s to come for the remainder of the week.
Yesterday saw further evidence of strength for the UK economy as the manufacturing PMI figure, which was expected to decline, came in higher and initially sterling rallied after the release before giving back gains to the dollar which saw a spate of safe haven buying late on in the session. A good manufacturing PMI can often be a signal for stronger than expected construction and services PMIs which are released today and tomorrow respectively, so sterling is seeing a little buying interest this morning with cable attempting to recapture the 1.6700 level. Watch out for this morning’s construction PMI which is expected to fall from 64.6 to 63.0.
Now that the financial markets seem to be normalising we can continue to look ahead to the week’s major risk events which are the ECB on Thursday and the US nonfarms on Friday. Eurozone PPI figures out this morning are expected to show a decline in producer prices and they will also be closely watched to see if there’s any hint of whether last Friday’s higher than expected CPI was just a flash in the pan.