Risk Sentiment Recovers But Greece Concerns Still Lurk Below Surface

Risk appetite has consolidated overnight, with Asian equity markets following European and US markets higher. The Nikkei is up +0.8%, Hang Seng +1.6% and Shanghai Composite + 2.0 %, while EURUSD has managed to remain above 1.3150 for most of the session. Contributing to this uptick in sentiment is undoubtedly the easing of stress in European bond markets, as well as the largely encouraging manufacturing surveys released throughout yesterday. Clearly, the underlying problems in Europe are still lurking beneath the surface so we cannot get too carried away with this short-term optimism – especially as Greece’s bond swap negotiations continue to drag on and test investor patience.

Yesterday’s US ADP employment report came out a little lower than expected at 170k (versus expectations for 182k), but this number is still pretty firm in absolute terms, especially when taken in combination with last month’s stellar reading of 325k. Looking ahead to tomorrow’s main event, the non-farm payrolls, it is possible that the ADP report will have tempered market expectations somewhat. Currently the official Bloomberg surveys are suggesting a 145k print in tomorrow’s headline number, after last month’s 200k gain.

Until then, we can look forward to a number of key releases from today’s schedule. This morning brings the January unemployment rate from Norway, UK construction PMI, and Eurozone PPI for December. This afternoon, the docket includes jobless claims figures as well as speeches from Chicago Fed President Evans (currently a non-voter at FOMC meetings) and BoE member Adam Posen.

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