The dollar was higher, and riskier assets were on the defensive after the Eurogroup rejected the IIF offer on a Greek debt swap proposal. Adding to the negative tone was the downgrade of European banks by S&P, which is weighed on bank shares. US earnings continued to impress overall, with McDonalds and Dupont beating expectations.
On the economic data front, euro zone composite PMIs increased to 50.4 in January, up from a final reading of 48.3 in December. The increase from 46.9 to 48.7 in the euro zone was driven by increases of about 3 points in the subcomponent for both new orders and output. The rise in new orders and drop in current stock is notable as this forward-looking ratio improved again in January.
The Bank of Japan left policy unchanged but more importantly it cut its growth forecasts for 2011 and 2012. The BOJ said export to emerging markets and spending for reconstruction after last year’s earthquake would help fuel a steady recovery.
The VIX volatility index climbed slightly touching the 20% mark before backing off latter in the trading session. Oil prices seem to slide along with gold and silver. The Australian dollar broke out to the upside, moving above trend line resistance created by the highs in August and the highs in October. Look for a test of 1.08.
