US dollar hits Yen and Sterling, Aussie doing okay and Euro consolidating

September 3, 2014

Last night was the night when markets might have had a light bulb moment and realised that the US economy really is doing well and that there may be a black swan or two hiding in plain sight.

The data was solid overnight highlighting the fact that the economy is on the mend and that as we approach the end of the taper it won’t be long before the conversation turns to when rates will rise.

Indeed the strength of th data was enough to hit US 10’s hard and drive them higher even though stocks didn’t pay too much attention.

Looking at the data the ISM August manufacturing PMI printed 59 against the 57 expected and the highest since March 2011. Markit’s version of the same data also beat expectations with a print of 57.9 which was the best since April 2010. Construction spending was also strong up 1.8% in July after the 0.9% fall the previous month.

There is no hiding the strength of that data and US 10′s rose 8 basis points to 2.42% which is still super low but it was a big 3.2% capital loss. The increase in UK 10′s, up 6 to 2.33% and German Bunds +4 to 0.93%, is harder to reckon except that as the RBA said yesterday if the Fed starts tightening everything changes.

So the wash up was that stocks ignored the data and bond move (they are still super low after all) and went nowhere with the S&P 1 point lower to 2,002, the Nasdaq was up 0.39% and the Dow fell 0.18%.

In Europe stocks were mostly higher with the DAX up 0.3% to 9,507, the FTSE was 0.05% up while the CAC fell 0.04% to 4,378. Stocks in Milan rose 0.49% while those in Madrid were up a smidge gaining 0.08%.

I am watching the DAX as the bellwether for Europe and last night looks like another rejection of the previous uptrend.

Locally the impact, after a great day yesterday, was a further 3 point gain on the September SPI 200 contract to 5,649. Iron ore is down again and China looks like it is coming after the iron ore miners so there could be some action in that sector today.

But the market didn’t look at the bottom end of the recent little range rather crashing through the top – well see how it goes from here.

In Asia yesterday the Nikkei ripped 1.24% higher as earnings rose 2.6% and the Yen weakened against the US dollar to sit above 105 this morning – its highest level since December 2013. Shanghai was strong as well up 30 points or 1.36% to 2,266. The Hang Seng was largely unchanged.

On currency markets the Aussie dollar has done a stunning job holding in all things considered. Not only did the US dollar crush the Yen (105.08) and Sterling (1.6467) but the RBA Governor questioned China’s housing market and upped the rhetoric on the Aussie dollar level in his statement yesterday. Certainly the Aussie dollar is down more than half a cent at 0.9277 this morning but that’s a solid performance. Elsewhere the Euro held in after recent falls and is at 1.3132 this morning.

That’s one heck of a trendline in GBPUSD.

On commodity markets September iron ore is down $1.18 a tonne to $86.70 while Newcastle coal fell 45 cents for the same month to$67.35 a tonne.

Crude fell 2.82% to $93.25 a barrel, gold was slammed $21 an ounce to $1,266 but copper rallied a couple of cents to $3.16. On the Ags wheat fell 1.56%, corn fell 0.27% but soybeans rose 2.42%.

On the data front today the Q2 GDP for Australia is out at 11.30 today. The market is looking for a fairly soft outcome between 0.4% and 0.6%. We’ll also get th AiG performance of services report and the RBA Governor Stevens is due to speak.

Offshore we get HSBC and Markit services PMI for China and around the world together with retail sales in Europe and the Redbook and NewYork ISM in the US.

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