Market Update - 22 Feb 2013

• Lots of data out of both the EU and the US last night let to a second night of risk aversion, kicked off by soft EU flash PMI reads. Hopes the euro zone might emerge from recession soon were dealt a blow, as surveys showed the downturn in the region's businesses worsened unexpectedly this month - especially in France. The EUR sold off to 5 week lows, helped by a technical break of range lows.

• US Headline and core CPI printed in opposite directions relative to expectations this month, with headline unchanged (+0.1% consensus) and core up 0.3% (+0.2% consensus).

• Overall, US CPI, Jobless Claims & PMI all came in pretty close to survey. It was Philly Fed manufacturing reading that capitulated...headline of -12.5 vs exp +1 however SPH3 actually RALLIED 0.4% on the result. I can’t explain all of that but I can tell you that inventories are down & employment on the rise so the market must be looking for a bounce in orders next month. Also note the equivalent NY report recently was a very good one..

• The UST 10y broke 2% and never looked back. Peripherals opened the Euro session 10bps wider. Both Spain and France had solid auctions with Spain selling Euro 4.2bn 2015, 2019 and 2023 paper. France sold Euro 8bn in 2015, 2017, 2018, and 2024 OATS to strong demand also. Treasuries briefly sold off after the auctions but continued their move to higher prices.

• The risk-off tone continued for the USDMYR throughout yesterday’s trading as it touched the 3.1100 handle near to closing time. The USDMYR pulled back a little off the highs and opened at around the 3.1050 level. We should see some support around the 3.1000 handle for now.