The USD$ is stronger in the O/N trading session. Currently it is higher against 10 of the 16 most actively traded currencies in another ‘subdued’ trading range as risk aversion one again appears.
Another light data day in the US yesterday had currencies content to trade in a tight trading range (has the summer trading season commenced in earnest?) ahead of the long weekend in both the UK and the US. Equity markets received a slight boost from the US unemployment claims numbers (+365k vs. +374k), as the unexpected drop in jobless claims spurred optimism that an economic slowdown is not forcing companies to fire more workers, but the O/N session has undone most of the positive work from this week. The risk of persistent high inflation is taking over as the dominant market theme. This should limit any further rallies in risk appetite positions as investors continue to add to their negative risk trades by selling USD/JPY and EUR/CHF). The USD$ continues to suffer from the perceived lack of inflation-fighting credentials at the Fed.
The US $ currently is higher against the EUR -0.02%, GBP -0.18% and lower against the CHF +0.17% and JPY +0.24%. The commodity currencies are weaker this morning, CAD -0.27% and AUD +0.45%. Canadian retail sales yesterday rose +0.1% in Mar vs. -0.8%. and as analysts pointed out advanced ‘five times as much in volume terms’. Conclusion, it shows further signs of buoyant consumer spending, despite growth slowing. This is a Mar. number and this is the end of May! Governor Carney from the BOC similar to Bernanke will rely heavily on the consumer and their spending. Despite growth slowing the BOC governor appears to be in a bind after this week’s Canadian inflation numbers. The data came in stronger than anticipated (core-CPI +0.3% vs. +0.2%) and coupled with commodity prices has caused the loonie to appreciate 4% vs. its southern neighbor in the past 10 days. One should expect higher inflation to slow the pace of monetary easing by the BOC (3.00%). Perhaps the BCE telecommunication buyout will put a further dent in to the loonie progress of late, as investors try to renegotiate the transaction at a lower cost. Foreign investors will not be happy after the stock had it worst trading day in a quarter of a century yesterday. If one took commodity prices out of the equation then economic data of late remains soft especially the manufacturing base. The AUD$ rose to its highest level in a quarter of a century (0.9606) this week, after the RBA said policy makers spent a ‘considerable time’ at their last meeting discussing an interest-rate hike (7.25%). Commodity prices continue to give it a boost and technical analysts believe that parity is only a matter of time away as the RBA continues to keep rates high and attract further support.
Crude is higher O/N ($132.28 up +148c). It was bound to happen after the aggressive 16% rise in the black-stuffs prices this month. Some profit taking and second guessing had oil prices pare some of its recent gains. Analysts believe that the recent run up in prices is not justified by stockpiles and demand. Speculators and short covering ‘under- water’ positions has had an immense impact on recent prices. According to the EIA reports this week consumption averaged 20.3m barrels a day over the past month, that’s down 1.3% y/y. Most market analysts, which includes OPEC in this category, believe that the fundamentals justify a much lower price for the commodity ($80-$100), the premium portion can be attributed to institutional investors coming into speculate the market. The one variable that is capable of derailing recent price movements is ‘is demand destruction’. OPEC officials remain vocal that crude oil markets are well supplied and that they have no intention to meet before its next scheduled conference in Sept. to review production (they currently pump more than 40% of the world’s oil). Yesterday, Gold fell from a 1-month ($922) high as the greenback rebounded vs. the EUR and other commodity prices fell, thus eroding the appeal of the yellow metal as a hedge against inflation.
The Nikkei closed at 14,012 up + 35. The DAX index in Europe was at 7,047 down -23; the FTSE (UK) currently is 6,149 -32. The early call for the open of key US indices is lower. Yields of the US 10-year bond backed up 11bp yesterday (3.92%) and eased 3bp O/N (3.89%) as equities struggled. Treasury notes fell for a second straight day yesterday but have been able to pare some of their losses O/N as oil prices at record high encouraged traders to increase bets that the Fed will have to raise interest rates sooner to curb inflation (2.00%). Investors see a 30% chance that the Fed will hike its target rate by a 25bp to 2.25% in Sept. This is up from 20% earlier in the week.
