The USD rally of recent days was partially rejected yesterday, but the sell-off is having a hard time finding legs today with ugly US data and a bout of risk aversion thoroughly confusing the picture once again ahead of the NY equity session.
Ugly US data
The data out of the US data is so far not particularly inspiring for the greenback. The CPI was only slightly higher than expected at the core, which suggests less worry on the Fed’s part about inflation. Then, the weekly initial jobless claims came in at 410k – a real disappointment for those looking for the downtrend to continue after last week’s 385k. We do have the issue of weather at play here, so as we have said before, let’s have a look at the numbers perhaps midway through March for a better indication of the status of the US job market. The employment related numbers in the major ISM manufacturing and non manufacturing surveys suggest reasonable strength in hiring, but it’s not showing up convincingly in the claims data nor in the confidence data.
Iran sending ships through the Suez
The data out of the US data is so far not particularly inspiring for the greenback. The CPI was only slightly higher than expected at the core, which suggests less worry on the Fed’s part about inflation. Then, the weekly initial jobless claims came in at 410k – a real disappointment for those looking for the downtrend to continue after last week’s 385k. We do have the issue of weather at play here, so as we have said before, let’s have a look at the numbers perhaps midway through March for a better indication of the status of the US job market. The employment related numbers in the major ISM manufacturing and non manufacturing surveys suggest reasonable strength in hiring, but it’s not showing up convincingly in the claims data nor in the confidence data.
Iran sending ships through the Suez
Just as we are going to press here, we have the announcement over the wires that Iran plans to go ahead and send 2 warships through the Suez Canal after Israel yesterday rattled its saber about responding to any such action. It is tough to separate the market reaction to this news from the market reaction to the US data. We also have the general noise level around the Middle East to consider here. In markets past, this kind of news would have had global equity markets on the floor - and we get the strong feeling that the market is under-appreciating the bigger geopolitical picture here in its maniacal focus on the POMO and The Bernanke Put. But the market always tells its own truth, our protestations notwithstanding.
Also today, we have seen a strong follow through in the Bunds rally from yesterday, and we have the US long treasuries and bonds following suite more convincingly today as well (though as we mention above, how much of this is the Suez Canal situation? We’ll find out within a couple of hourse. The rally has thrown a bone to the Japanese Yen, which is moving stronger across the board ahead of the US equity session.
Odd Aussie
AUDUSD survived ugly developments in copper yesterday and seemed to only want to follow developments in risk appetite instead. It showed remarkable stability during the brief flap over the Iran/Israel news as well. Overnight we’ve had another steep sell-off in copper, and yet hardly a reaction from Aussie, which has indeed even tried higher through the 1.0058 resistance today. This is odd, to say the least. Have no doubt, AUD is more of a commodity currency than it is a risk currency (have a look at 2008 in commodity and equity prices mapped against AUDUSD and see which one was more influential.) While yes, AUDUSD looks resilient here, the interest rate support and the support from certain key commodities is just not there at the moment, so we look on any rally here with a rather jaundiced eye.
AUDUSD survived ugly developments in copper yesterday and seemed to only want to follow developments in risk appetite instead. It showed remarkable stability during the brief flap over the Iran/Israel news as well. Overnight we’ve had another steep sell-off in copper, and yet hardly a reaction from Aussie, which has indeed even tried higher through the 1.0058 resistance today. This is odd, to say the least. Have no doubt, AUD is more of a commodity currency than it is a risk currency (have a look at 2008 in commodity and equity prices mapped against AUDUSD and see which one was more influential.) While yes, AUDUSD looks resilient here, the interest rate support and the support from certain key commodities is just not there at the moment, so we look on any rally here with a rather jaundiced eye.
Odds and ends
When is the last time you saw a -1.1% reading month-on-month for a core CPI release? That’s what Sweden saw in January, and this is finally seeing the Swedish krona’s furious rally tire somewhat, as new lows in EURSEK today were roundly rejected and the market took a bite of a few bps out of the forward expectations from the Riksbank. By the way, we tend to ignore the Swedish employment data, as the unemployment swings around so wildly that we’ve never taken a crack at understanding why.
Norway’s mainland GDP (basically the attempt to view Norway’s GDP without its oil-related economic activity) saw anemic growth in Q4, but Statistics Norway strongly revised projected growth rates for Norway higher, suggesting that mainland GDP would grow by 3.3% in 2011 and 3.8% in 2012 (vs. 3.0%/3.4% earlier.
When is the last time you saw a -1.1% reading month-on-month for a core CPI release? That’s what Sweden saw in January, and this is finally seeing the Swedish krona’s furious rally tire somewhat, as new lows in EURSEK today were roundly rejected and the market took a bite of a few bps out of the forward expectations from the Riksbank. By the way, we tend to ignore the Swedish employment data, as the unemployment swings around so wildly that we’ve never taken a crack at understanding why.
Norway’s mainland GDP (basically the attempt to view Norway’s GDP without its oil-related economic activity) saw anemic growth in Q4, but Statistics Norway strongly revised projected growth rates for Norway higher, suggesting that mainland GDP would grow by 3.3% in 2011 and 3.8% in 2012 (vs. 3.0%/3.4% earlier.
Looking ahead
The remaining calendar points ahead of the weekend aren’t particularly noteworthy. Later today we have the Philly Fed, the second of the major US regional manufacturing surveys after the fairly strong, if slightly decelerating Empire survey from earlier this week. In January, the Philly survey was particularly strong in the New Orders and Number of Employees sub-indices, but also showed the kind of margin compression risks that we face in this environment as Prices Paid were a lofty 54.3 vs. Prices Received at 17.1.
The remaining calendar points ahead of the weekend aren’t particularly noteworthy. Later today we have the Philly Fed, the second of the major US regional manufacturing surveys after the fairly strong, if slightly decelerating Empire survey from earlier this week. In January, the Philly survey was particularly strong in the New Orders and Number of Employees sub-indices, but also showed the kind of margin compression risks that we face in this environment as Prices Paid were a lofty 54.3 vs. Prices Received at 17.1.
Watch out for Bernanke and company testifying on the Dodd-Frank legislation, which was the awkward and lame response to the financial crisis in the US and changed very little about the way in which the TBTF banks are allowed to operate. Later, we have the Dallas Fed’s Fisher – one of the very few Fed governors worth listening to and the one to watch for leading real dissent against Fed policies.
Event risks aside, yesterday’s action looked very odd and was not at all supported by the moves in interest rate spreads. Are we breaking away from spreads determining the currencies’ trajectory? Too early to say yes, but it’s clear that the USD needs a risk sell-off more than it needs marginal improvement in yield spreads to gain a bid.
Elsewhere, we’re picking up signs of decelerating risk willingness in our Carry Trade Index – though the only directly risk averse indicator there has been in Emerging Market bond spreads, which are strongly divergent from most of the other indicators. So we may have leading edge signs that the support for the monolithic equity rally is declining, but not enough divergence to get overly worked up about just yet. It has become painfully clear that any attempt to go against the market juggernaut has had fatal consequences for the bears.
Above all, be careful out there. This market is completely irrational and dangerous.
Economic Data Highlights
- New Zealand Jan. Business PMI out at 53.7 vs. 53.2 in Dec.
- New Zealand Q4 Producer Price inputs/outputs out at +0.9%/+0.2% QoQ respectively vs. +0.7%/+1.2% in Q3
- New Zealand Feb. ANZ Consumer Confidence out at 108.1 vs. 117.1 in Jan.
- Sweden Jan. CPI out at -0.5% MoM and +2.5% YoY vs. -0.4%/+2.6% expected, respectively, and vs. +2.3% YoY in Dec.
- Sweden Jan. Core CPI out at -1.1% MoM and +1.4% YoY vs. -0.5%/+2.0% expected, respectively and vs. +2.3% YoY in Dec.
- Sweden Jan. Unemployment rate rose to 8.2% vs. 8.0% expected and 7.4% in Dec.
- EuroZone Dec. Current Account out at -13.3B vs. -10.5B in Nov.
- Norway Q4 GDP out at +2.4% QoQ and mainland GDP out at +0.3% QoQ vs. +1.7%/+0.9% expected, respectively and vs. -1.5%/+1.1% in Q3
- EuroZone Dec. Construction Output out at -1.8% MoM and -12.0% YoY vs. -6.3% YoY in Nov.
- Switzerland Feb. ZEW/Credit Suisse survey out at -17.2 vs. -18.4 in Jan.
- UK Feb. CBI Total Orders out at -8 vs. -9 expected and -16 in Jan.
- Canada Dec. Wholesale Sales out at +0.8% MoM vs. +0.9% expected
- US Jan. Consumer Price Index out at +0.4% MoM and +1.6% YoY vs. +0.3%/+1.6% expected, respectively and vs. +1.5% YoY in Dec.
- US Jan. CPI ex Food and Energy out at +0.2% MoM and +1.0% YoY vs. +0.1%/+0.9% expected, respectively and vs. +0.8% YoY in Dec.
- US Weekly Initial Jobless Claims out at 410k vs. 400k expected and 385k last week
- US Weekly Continuing Claims out at 3911k vs. 3893k expected and vs. 3910k last week
Upcoming Economic Calendar Highlights (all times GMT)
- US Fed’s Bernanke and others testify on Dodd-Frank (1500)
- EuroZone Feb. EuroZone Consumer Confidence (1500)
- US Jan. Leading Indicators (1500)
- US Feb. Philadelphia Fed Survey (1500)
- US Fed’s Lockhart to Speak (1700)
- US Fed’s Evans to Speak (1730)
- US Fed’s Fisher to Speak (1810)
- China Dec. Conference Board Leading Index (0200)
- Japan Jan. Nationwide Department Store Sales (0530)
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