The World Cup has ushered in a period of risk off and the Aussie dollar is benefitting

June 13, 2014

I’m banging the same drum again but it feels like the World Cup in Brazil might be a catalyst for some chips being taken off the table in global markets. Off course it’s only been two down days and US markets are still not too far from all-time highs but we may be approaching a period of disinterest which could see stocks finally start to have their northern summer swoon.

At the close the Dow was off 110 points to 16,734 for a fall of 0.6%, the Nasdaq fell 0.8% to 4,298 and the S&P 500 had a fairly substantial 14 point or 0.71% drop to 1,930. The data didn’t help with retail sales missing (0.3% v 0.6% expected) and jobless claims printed higher than expected at 317,000.

Clearly the Iraqi re-insurgency weighed on markets along with the disappointment of the data in the US and in Europe stocks were flat to down for the most part. The FTSE was 0.06% higher to 6,843, the DAX fell 0.11% to 9,939 while the CAC was largely unchanged at 4,554 down 0.02%. In Milan stocks dropped 0.27% while the IBEX in Madrid rose 0.13%.

Here is where the risk off meme gets some traction with US bond markets digesting $13 billion of 30 year issuance with the 10′s finished unchanged at 2.60%. In Europe German bunds rallied 1 point to 1.39% and Gilts sold off one to 2,72%. But in a sign that the equity sell off could be more than just the vanilla fare we are used to Spanish 10′s sold off 6 points rising tp 2.70% while Italian 10′s rose 3 pips to 2.82%.

So the wash up is that the ASX is down 30 points in overnight futures trade with the SPI 200 back at 5400 bid. It’s likely to be a tough day for miners with iron ore crashing through recent lows overnight. On the bond boards the 3′s were up 1 point to 97.16 while the 10′s rose 3 points to 96.21.

Stocks off, selling Europe’s peripheral bonds and buying Aussie bonds while the Aussie dollar is up. It feels like a little risk is being taken off the table. I’m thinking of Kenny Rogers “The Gambler” – you go to know when to hold em, know when to fold em….

On currency markets the Euro stabilised rising back to 1.3555, Sterling ripped higher after comments from Mark Carney the BoE Governor that implied a rate hike is not too far away. USDJPY sits at 101.74 and the Aussie is back above 94 cents at 0.9423.

On commodity markets iron ore is crashing again with the September contract losing an incredible $2.25 tonne to $90.58. Thermal coal out of Newcastle was unchanged at $72.55 for the September contract but the big news, huge news and a handbrake on global growth, is the Iraqi conflict induced spike in Nymex crude. The June contract rose $2 to $106.81 Bbl. Gold picked up a percent as well and sits at $1,272 while silver is still at $19.05 oz. Copper fell back to $3.02, a long way from this months high at $3.15 while soybeans crashed 2% and corn rose 0.68%. Wheat fell a similar amount.

On the data today Chinese retail sales will provide some interest today as will the BoJ’s monetary policy decision. Tonight we get CPI in Germany and Italy along with EU employment and trade. In the US PPI is the key highlight.

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