Aussie dollar break down, US dollar strength and Dow 17,000

July 4, 2014

Happy 4th of July – it should be a quiet day once the markets catch up to the overnight moves.

Last night’s non-farms for May at +288,000 was steller.

Huge, brilliant, very strong – you can’t over cook the solid result particularly because April was also upgraded to 304,000. You can read economists reactions here. But for a local flavour the NAB economics and markets team summed it up nicely in their Market Today report this morning.

Well, that was a good one. We’ve been waiting for consistently good US data and now we are getting it. The USD was modestly enthusiastic about it; yields less, so but the fact is, the US labour market is improving. What more to markets, and the Fed need to see?

Indeed the risk is now that the time between the end of QE and actual increases in US rates will now be truncated.
But that hasn’t fazed stock traders who took the Dow to a close above 17,000 for the first time. At the early close, for the 4th of July holiday, the Dow was up 92 points at 17,068 for a gain of 0.54%. The Nasdaq rose 0.63% and the S&P 500 was similarly ebullient up 10 points or 0.53% to 1,985.
At the same time that the fireworks of non-farm payrolls were happening in the US ECB President Mario Draghi was holding a press conference after the ECB decided to leave rates on hold. You can find a wrap of what he said here. But the key for me was the comment that the entire Governing Council is behind unconventional policies suggesting QE will come eventually.

Stocks seemed to like the rates low forever meme and the DAX rose 1.19% to take it back above 10,000 closing up 118 point at 10,029. The CAC was 1.02% higher but the FTSE lagged a little up just 0.71% at 6,865. In Milan and Madrid stocks rose 0.95% and 0.67% collectively.

All of which has helped the Australian market break higher with September SPI 200 futures up 27 points overnight at 5480 bid.

Top of the Box here it comes!

On bond markets the initial weakness which drove the US 10′s up to 2.69% gave way to buying and the close of 2.64% was pretty solid all things considered. Bunds closed at 1.29% unchanged after moving around a little in sympathy with the US but balanced by Draghi. Gilts closed at 2.75%.

– Locally the yield curve moved yesterday with the weak data and RBA warning. As I highlighted earlier this morning at Business Insider the short end has start to price in the chance of a rate cut now and 3′s and 10′s have rallied also. Aussie 3′s in Sycom trade actually lost a few points though crashing into serious technical resistance to finish this morning at 97.33 (2.67%) while the 10′s lost 4 points to 94.605 (3.295%).

On currency markets the US dollar caught the up draught of stronger jobs. Euro lost 0.35% to 1.3610, GBP was only down a smidge to 1,7151 while USDJPY rose 0.43% to 102.19. The Aussie was the big loser with a combination of drivers seeing it lose a percent in the past 24 hours and it sits at 0.9344 this morning.

Support from former trend channel top???

On commodity markets iron ore slipped back a little unable to break solid resistance. September futures fell 16 cents to $96.42 tonne. Newcastle coal for September also fell losing 20 cents to $70.55 tonne.

Crude fell 0.40% to $104.09 Bbl but Dr Copper rose another cent to $3.25 lb. Gold pulled back to $1,319 under the weight of the USD while silver settled at $21.12. On the Ags corn fell 0.36%, soybeans a similar amount but wheat was up 1.11%.

On the data front today it is very quiet with only German factory orders out.

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