European markets continued to post gains to open the New Year’s trading on equity bourses, buoyed by better than expected inflation reports. Following the stronger than expected German inflation number (9.6%p.a.), French inflation fell to 5.9%, much lower than the expected 6.4%! Moderated inflationary pressures in the economy is key to a stronger economic recovery, as energy prices tumble, reducing input costs and the consumer’s cost-of-living. Services and Composite PMI across the EU all managed improvements, adding to the growing confidence in markets, although all of these measures remain in contraction mode. The US Dollar drifted lower, allowing the EUR to regain 1.0600, while the GBP broke back above 1.2000.
Commodity currencies were beneficiaries of the fall in the reserve, with the AUD jumping back to 0.6850, while the NZD looked to regain 0.6300. Markets await the FOMC minutes, set for release today, giving an insight into the Fed’s thinking. The market focus will now turn to the important Non-Farm Payrolls number, set to be released Friday.