Vantage FX | Sandy drives cash to the US Dollar | 30th October 2012

Hurricane Sandy has already disrupted trade on the New York Stock markets but more than just trade Sandy is going to disrupt the US economy in a serious way. Already there was talk of the non-farm payrolls due this Friday not being released but more important is the disruption to business and commerce and crucially to confidence in the US economy.

In the past the Fed might have eased to help accommodate the disruption to economic activity in the same way the RBNZ did after the Christchurch earth quake. But when you are pushing on a string with rates at zero the Fed won’t be able to give much help this time round. It is no exaggeration to say that the US economy and its growth profile is at more risk now than before Sandy. Sure some economists are already focussing on reconstruction but to me as a behaviouralist I simply think Sandy is another twack in head for the US economy.

What Sandy is also doing and will continue to do is raise uncertainty and in an environment of increased uncertainty people keep their money close at hand.

So it was at the globe’s safe haven – the US dollar – benefited across the board. Even gold fell again and Crude tanked. Hopefully Sandy doesn’t hit as hard as the weathermen fear but we’ll just have to wait and see.

Stocks

As discussed the US stock market was closed but in Europe  the FTSE fell 0.20%, the DAX dropped 0.40%, the CAC was 0.76% lower, Spain fell 0.67%. Greece and Italy were however the big movers. The Athens stock exchange was down more than 6% at one stage after the Finance Ministry announced that the the Greek Bank quarterly earnings numbers would be delayed 1  month. Equally concerning for Greece and Greek stocks was the comment by Nowotny that the ECB won’t be taking a haircut on Greek debt. Over in Italy Silvio Berlusconi’s tantrum after being sentanced to jail and his threat to bring down Monti saw the Milanese exchange off 1.51%.

Yesterday in Asia the results from Honda were pretty dire and it lost 4.7% of its value after downgrading the outlook for 2013 but the Nikkei managed to end basically flat. The Australian market eked out a 0.1% gain and futures trade is pointing to another small rally today although I wouldn’t be buying that as it looks to me like the SPI200 is dropping through a 3 month uptrend as you can see above.

FX Markets 

On FX Markets as noted above the US dollar was a little stronger with the Euro hitting a low around 1.2880 roughly the same level as Friday night before bouncing back a little to sit just above 1.29. The Pound likewise had a negative day falling more than 100 points from a high of 1.6102 yesterday to a low of 1.6002 and it sits now at 1.6026. Sterlings price action looks poor and it seems to me that a move toward 1.5870 is in the offing – this is the bottom of the current downtrend channel. USDJPY rallied off the 200 day moving average around 79.50 overnight and sits at 79.80 as I write – I remain bullish this cross in a trend sense.

For the Australian Dollar it is an interesting time – uncertainty never used to be good for the Aussie and so strength in adversity is a strange bedfellow and one that I simply don’t trust. Indeed the Aussie was doing really well in our timezone yesterday up to a high around 1.0370 before finding the sellers once again and consistently before running down to a low around 1.0325. It’s not exactly a huge range  in the grand scheme of things and its strength in adversity means I need to put my concerns aside for now – but they linger.

As you can see in the chart above the Aussie has some tentative downtrend resistance overhead and I agree with the NAB FX Strategists characterisation yesterday that the AUD lacks the strength to get above 1.04. Rather I favour a move back toward 1.03. But as we say the AUD is in a big old range for the moment and trading that is favoured over having a swing for the fences one way of the other.

Commodities

Crude was the big mover over night dropping another 1.24% to $85.21 Bbl and I continue to favour this heading toward $80 Bbl. Gold held just above $1700 oz. still but it too has a negative bias at present. Volumes were light due to the storm but the trends remain intact.

Datawise today we get some interesting releases out of japan with Industrial Production for September and the market is looking for a decline of 7.1% yoy and 3.3% mom. We also get the BOJ interest rate decision which will be very important for USDJPY and a possible catalyst for unilateral intervention. In Australia we have HIA new home sales and tonight Deputy Governor Phil Lowe speaks about Australia and the rest of the world. Data in Europe tonight is concerned with consumer and industrial sentiment before the release of Case Shiller housing in the US

NB: Please note all references to rates above are approximate and should not be used for trade reference.