It was only really second tier data overnight but it contributed to some decent moves in FX markets with weakness in the UK but strength in the US.
Sterling came under pressure from the much weaker than expected UK retail sales which fell 0.9% in August against expectations of a rise of 0.4% and from 1.1% in July. This knocked GBP from a high at 1.6152 to sit currently at 1.6030.
In the US though the data was solid with Jobless claims printing 309,000 while equally strong was the Philly Fed manufacturing index which printed 22.3 versus 10 expected while existing home sales rose 1.7% versus -2.6% expected.
It all added up to a bit of strength for the US dollar and the the Aussie dollar couldn’t sustain yesterday’s rally amidst a generalised USD surge. At 0.9435 the AUD is off 0.86% on the day but still trails the move in the Yen which lost 1.47% against the USD with USDJPY back up at 99.37.
Indeed looking at the Aussie you can see in the chart below the sellers emerged above 95 cents with the high at 0.9524 hit a few times across the day but proved solid.
Support is the fast moving average at 0.9418 then the trendline at 0.9387 which is also currently the middle of the bolly bands. A break will open the way for a move back toward the 38.2% retracement level of the move at 0.9280.
As discussed yesterday the weeklies suggest continued rallies but the dailies suggest a pullback so it is going to be an interesting time.
On stock markets there was a little unsurprising weakness after yesterday’s rally and the data overnight. At the close the Dow (-0.25%) and S&P 500 (-0.2%) were marginally lower while the Nasdaq rose 0.14%. Rates in the US backed up 6 pts to 2.75%.
Prior to this though Europe played catch up with rises across the board. The FTSE rose 1.01%, DAX up 0.67%, CAC up 0.85% while Milan and Madrid rose 1.43% and 1.01% respectively. European rates also sold off rising 7 points in Germany to 1.93% and 11 points in the UK to 2.72%.
On Commodity markets Nymex crude fell 1.68% to $106.25, Gold had a huge day trading up to $1368 presently for a gain of 4.71% while silver ripped 8.03% higher and copper jumped 2% to $3.35 lb. In the Ags corn rose 0.82%, Wheat jumped 1.62% while Soybeans fell 0.50%.
With China out today and virtually no decent data it should be a fairly quiet day. Foreign investment in Japan, Kiwi visitor arrivals, Italian Industrial data and then 3 speeches from the Fed which might actually add a bit of week end excitement tonight.
Quick thoughts on the decision not to taper.
The Fed’s decision not to taper has complicated the outlook going forward as ben Bernanke explicitly said that the Fed is not in the business of reacting to Market Expectations. He also said that the FOMC had grown concerned about the move higher in US 10 year rates, which hit 3% recently and noted that if the FOMC could aid the trend toward lower rates then that was good.
But as the data showed overnight the Fed may have downgraded its outlook for the US for this and next year there are still pockets of strngth which will continue to put pressure on bond yields and undermine what the Fed is trying to do.
Equally important though in the Fed’s thinking is the likely showdown on Capitol Hill over the US debt ceiling limit next month which could force a Government Shutdown and become a further drag on growth.
So it’s all a little more complicated now than it was – we don’t know if the Fed still intends to Taper this year or as some US newsires are reporting the withdrawal of Larry Summers from the race for Fed Governor means that Ben Bernanke is now comfortable to hand off to Janet Yellen and let her taper in her own time.
Higher ranges for the Aussie, Euro and GBP seem likely but volatility is going to remain.
Have a great day and good hunting