The US dollar continued to show form overnight with falling commodities and stronger US data providing a solid source of support. Europe’s economic plight remained in focus amid a series of mixed data points from both sides of the Atlantic, but overall there was little in the way of catalyst to spur risk sentiment higher.
Although there’s a strong belief a Spanish bailout is in the cards, markets remain on the sidelines waiting for further news to surface with tonight’s ECB policy meeting tipped to be the next major directive. Spanish Prime Minister Mariano Rajoy rejected reports a bailout request may come as soon as this weekend. Responding to a report by Reuters quoting European officials as saying a bailout request was imminent, Rajoy stated “If a news agency reports that we’ll ask for aid this weekend, there can only be two explanations; that the agency is right, and knows more than I do, which is possible, or that they are not right.” But, if it helps, and you accept that what I say is more important than this leak, I say no we won’t ask for aid this weekend.”
Markets also weighed up a series of mixed economic data from both sides the Atlantic, but ultimately both European and US equity markets reflected a largely risk-neutral session. The European data pulse remained supportive of the downside with both German and Euro-zone services PMI failing to meet consensus estimates. A concession was a rise in Euro-Zone retails sales which grew 0.1 percent in August to represent a 1.3 percent fall in yearly terms. Economists’ had anticipated a fall of 1.9 percent.
US equities managed claw out moderate gains with the S&P500 closing 0.36 percent higher. Nevertheless, mild strength from US stocks failed to spill over to risk currencies with greenback gaining the upper hand against its high-beta counterparts. Positive US data and a drop in crude oil strengthen the greenbacks appeal with a notable rise seen across the board with the USDJPY pair squeezed to highs of Y78.6. Despite moderately better data from a US perspective, there’s little in the way of impetus across markets to keep the upside momentum alive. ADP private sector employments gauge saw 162,000 new jobs added in September, in excess of the 140,000 expected. ISM services rose to 55.1 in September against a previous 53.7 – economist’s had anticipated a fall to 53.4. Both releases are considered positive precursors ahead of Friday’s monthly payroll data.
The Aussie dollar took a leg down in yesterday’s domestic session after China’s services PMI and a much greater than expected trade deficit. Commodity weakness overnight confirmed the trend with a steep drop in crude oil promoting a stronger greenback across the board with the Kiwi leading a commodity bloc sell-off. The Aussie’s decline was met with support just below 102-figure but remains on tenterhooks ahead if today’s retail sales and housing data releases. Retail sales are expected to bounce 0.4 percent in August after a 0.8 percent decline in July. At the time of writing the Australian dollar is buying 102.3 US cents.