Vantage FX | Stocks, Yen and Aussie dollar down again | 16th November 2012

The Yen was the big story of the past 24 hours as expectations grow that the BOJ is about to man the monetary pump once more but equally it was another weak night on European stock markets after the Eurozone GDP confirmed that Europe is in the technical definition of recession and it became clear that the IMF has had enough of the European Commisions bumbling handling of the Greek debt crisis.  Israeli rhetoric and actions in Gaza haven’t helped the tone of the markets either while in the US data wasn’t too flash either but their stock markets have been able to hold up relatively well even with a negative bias.

Looking at the European data we see that the Eurozone reported growth of -0.1% in Q3 which on top of the -0.2% for Q2 satisfies the economists technical definition of recession but I’m guessing the 80 million Europeans out of work might already know that. Looking at the specific country GDP’s Germany and France printed growth of 0.2% which was on the money for Germany but a positive surprise for France. In Spain GDP contracted 0.3% for a year on year fall of 1.6%. Italy is under real pressure falling 0.2% which was much better than the half a percent fall the punditry expected but its annual contraction stayed at 2.4%. In the UK we didn’t get GDp but retail sales were much weaker than expected printing -0.8% in October against expectations of a flat result.

In other data we saw CPI for Europe and the US which was 1.5% and 2.2% yoy respectively. So no inflation pressure there. Jobless Claims were also out in the US and showed a huge surge to 439,000 from 375,000 previously but I think we can blame Sandy for this one. What Sandy can’t be blamed for though is the huge drop in the Philly Fed manufacturing survey from 5.7 last month to -10.7 in November. The New York Empire State manufacturing index was -5.22 which is a little better than expected.

So all in all a very poor night for data and a bad night for European and US bourses again.

Stocks

At the close of play in Europe losses were across the board the FTSE down 0.77%, the DAX fell 0.52% and the CAC was off 0.52%. Amsterdam was hit hard falling 1.79% after the weak Dutch GDP of -1.01% result but Madrid managed to buck the trend up 0.29%

In the US with 22 minutes to go  the S&P 500 is down 0.48% at 1349, the Dow Jones is 0.54% lower and the NASDAQ is off 0.68%. It’s been a very weak start to November indeed.

In Asia yesterday the Nikkei roared higher as the spectre of Money Printing by the BOJ captured the headlines after more comments from the putative Prime Minister Shinzo Abe continued his push for unlimited Yen. A weaker Yen might just get some competitiveness back into Japanese companies which have clearly lost their innovative Mojo over the past half decade or more – walkman or iPod – so at the close the Nikkei was up 1.90%. The rest of Asia, including our own ASX All Ords were largely lower – the ASX was down 0.91%, Kospi fell 1.23%, Straits Times fell 1.08% and Shanghai fell 1.22%.

FX Markets

While all the news is about the Yen today I want to focus on the Aussie Dollar because readers know that I am of the view the USDJPY is headed over time back toward 100. Levels are 82, 84, 93 then 99 longer term.

But lets look at the AUD which after weeks of ignoring the weak equity market and its sharp selloff has finally had a sell off of its own over the last day or so. Sure the low of 1.0306 overnight is not really that bad when compared to the recent high of 1.0458 just the night before nor even last weeks high around 1.0480 but the questions must be asked as to whether the Aussie might be in for a round of selling.

AUD USD

Now of course it could head lower now that it has broken the uptrend line and I am looking for a move to the mid 1.0250 region and possibly a retest toward the bottom of the recent range at 1.0150.

More medium term though the outlook for equities is the key – again in the US early strength has given way to weakness toward the close and the S&P 500 below 1350 is flashing a warning and I do expect it to head another 100 points lower eventually. Should this come to pass it will really test the Aussie’s status as a safe harbour for e little while because it would signal a real risk off event and buyers would pull their heads in and the specs who are long would need to liquidate. Key here though is that the Sovereigns and Central banks who have so much AUD will not be spooked so even a full on risk off event is not going to see AUD at 60 cents.

On this the catalyst or excuse for some of the past 24 hours selling appears to have been the release of the RBA data on its transactions with the market which showed that it purchased a net $483 million worth of Foreign Currency last month, sold AUD. Some have characterised this as intervention but I would simply say that $483 million is not a lot in the context of a days trade let alone 1 month. I personally sold more than double that amount on one day back more than a decade ago when volumes were lighter with no real lasting impact – so its not intervention, its just leaning against the wind and building up a war chest for when they need to intervene to support the Aussie in the future or where they can make some profits turning the position.

EURJPY

Elsewhere the Euro continued its technical rally against the USD which is in no small part aided by the strong run up in EURJPY which you can see in the chart above. It’s incongrous for the Euro to rally after that poor GDP data last night but equally if think of the surprise in the data and so how the market might react we see that the overall Eurozone result along with that of France and Germany were at or better than expectations which helps explain the EUR strength a little better. GBP also had a better night than could have been expected given the weak retail sales but this one is still pointed lower.

Commodities

On commodity markets the Nymex crude was off 1.23% to $85.26 Bbl and it hasn’t really gone anywhere for a while now. Gold fell 0.94% but Silver somehow rose 1.21% which seems incongrous but needs investigation. Copper was up marginally and the Ags were down again. Soybeans fell 1.07%, Corn dropped 0.62% and Wheat fell 0.38%.

Datawise There are a few Fed guys talking today in our timezone then I’ll be watching the EU trade balance tonight and then US IP tonight.

Thoughts, comments, queries together with frank and fearless feedback all welcome. I’m happy to answer questions or comments on the comment stream wherever I can

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

Catch me on Twitter @gregorymckenna or @FX_Global