Strong Data drives US dollar higher

August 14, 2013

Recap

  • Nothing to complain about in the data from Europe and the US overnight with the ZEW economic survey in Germany (42) and the EU (44) printing better than expected which was then followed up by strong core retail sales in the US (0.5%). Both data point to recovering economies with the later obviously leading to more Taper Talk.
  • On Global FX markets the impact of the data was an aborted Euro rally (1.3265, -0.25%) as the USD continued to get its Mojo back pushing sharply higher against the Yen (USDJPY +1.36% @98.20) the Swissie (+0.7%, @0.9325) while also making gains against the Aussie (0.9113, -0.38%0 and the Loonie (USDCAD +0.37% @ 1.0344).
  • While the US dollar was pushing upward US rates were doing the same after digesting the fact that the Taper seems only a matter of time. US 10’s rose 11 points to 2.72%, just off their highs and under pressure all day. Bunds tanked as well up 10 points to 1.81% and Gilts were up 13 basis points to 2.60%. While the economy supports Tapering in the US a massive rise in US bond yields is a huge risk to the Fed’s exit strategy and of course the Economy.
  • Dollar and Yields up would usually be followed by stocks down and in the US that was the case until around 12.30 pm when they clawed back into the black and stayed there to close with the Dow (+0.2% @15,451), Nasdaq (+0.38% @3,684) and the S&P 500 (+0.27% @1694) all higher.
  • In stock specific news Carl Icahn was on Twitter saying that he has a position in Apple and had talked to CEO Tim Cook about stock buybacks. While I am a Macro Guy I’d posit Apple is finished if that is the best thing it can do with its cash.
  • European stocks were a sea of green with the FTSE (+0.57%), DAX (0.68%), CAC (0.52%), Milan (0.68%) and Madrid (0.47%) all higher.
  • On Commodity markets Gold was a little lower down 1% at $1321 oz, Silver was unmoved after its big push the day before, Dr Copper was unchanged at $3.31 lb while Nymex crude was up 0.43%. On the Ags markets it was more volatility with corn down 3.39% I imagine margin amounts must be rising in the Ag Pits after all this volatility.

On the data front Retails sales in New Zealand then the Westpac-MI consumer confidence index and the Wage Price Index in Australia before we head to Europe for French, German, Portuguese and EU wide GDP data and UK unemployment. PPI in the US and EIA Crude stockpiles are also out.

This GDP data in Europe tonight is going to be a huge lead for FX markets – is the recovery real or is it ephemeral? We’ll get a better feel tonight.

Gee Whiz Australian growth looks weak

Yesterday saw the release of the NAB Business survey which is my favourite single economic release each month because it just gives so much detail about where business is and where the various sectors of the economy are. Here is a link to the article that MacroBusiness ran yesterday on the release which includes the full release from the NAB but I just wanted to highlight the core points here and then quickly discuss the implications for Australia, the RBA and the AUD.

What you see is that business conditions remain weak, that confidence has taken a hit and that labour and purchase costs have risen. That just screams margin squeeze in an economy where domestic demand is already weaker than most businesses would care to operate in. What you also see is that Employment is still weak at minus 5 and the NAB says it is likely to stay in negative territory in the months ahead based on their internal analysis and correlations.

Now for me this information really just highlights why the RBA cut this month and why they will be cutting again in the future. Notwithstanding the hopefulness of the recover in teh US and, fingers crossed, some sort of recovery in Europe the reality appears that Australian business is still struggling and against this backdrop it is going to be hard to get the kinds of employment gains that are going to stop Australian unemployment growing and which is going to continue to keep Australian households circumspect in their spending.

Equally I have wondered for a few years now if Australia could afford the type of wage growth we have had for many years now and not send business and ourselves out of business. I strongly believe that what is happening at Holden now will have broad implications for business and workers across the nation. If its not the future for workers they will at least be watching what has happened and I bet this just feeds into more spending circumspection. David Llewellyn Smith has done an article on it at MacroBusiness this morning which is worth a look – you can find it here.

The Aussie is just hanging in

Yesterday the Aussie held the support we articulated at 0.9100/05 but overnight it slipped to a low  around 0.9070 which is the 50% retracement level of the second leg of run higher we saw last week and the 38.2% of the entire run higher to Monday’s peak. Siting at 0.9103 this morning the Aussie looks a little vulnerable to a further push lower to find real solid support.

Aussie looks biased lower on the hourlies while below 0.9120 today.

Good hunting and watch out for Consumer Sentiment today if you are trading Aussie

Greg

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