Bell Ringing- Bell Weathers
The three bellwether US indexes, the DOW, S&P and NASDAQ, all closed at record highs yesterday, in part assisted by a rebound in energy stocks after a 4% bounce in crude oil.
In addition, the US Retail Sales Report for July is expected to be buoyant after US retailers reported better than anticipated sales. The auto sector reported a 6.6% month-on-month lift in car sales; and with US consumer sentiment indicators on the rise, traders are being reminded never to underestimate the spending power of the US consumer.
In the wake of a tepid Q2 GDP, the US Retail figures will attract much attention as the US consumer is responsible for much of the heavy lifting to support moderate underlying US GDP growth.
Oil- Another Oil Gusher
Oil prices rocketed higher overnight after reports that Saudi Arabia’s energy minister Khalid Al-Falih will take action to help the market rebalance. His enchanting words sent equity markets into a froth. In another case of deja vous, and despite signals pointing to a potentially enormous bulge in crude stocks for 2017, there appears to be no taming of the oil market bull when OPEC speaks.
.Aussie –Temporarily Disconnected
The Australian Dollar has taken a back seat overnight temporarily disconnected from the risk rally in oil and equities. While there’s likely some hangover effect from the fact the global central banker policy decisions are finished for the month, the market has entered consolidation mode awaiting the next major catalyst
AS well, I suspect there is a regional knock on effect from comments made by RBNZ assistant governor John McDermott at the beginning of the European session that suggested the RBNZ was far from a reluctant cutter by implying further rate cuts were in the offing. Given that Aussie positioning is long, and the RBA interest rate outlook is equally dovish, there is likely some element of position squaring in play ahead of tonight’s US retail sales.
Currently, the Carry Trade setting is very friendly with the Fed on hold scenario. However, that balance could swing if the US consumer pocketbooks were opened more than expected in July
USDJPY- Home on the Range
The US ” Retail Rally” is positive for overall risk sentiment and supportive for USDJPY.
Recent FED speak is leaning “optimistically bullish”, so maybe the “ red herring “ mid week interpretation of last Fridays NFP report was far too pessimistic.
Throw in another drop in US Initial jobless claims after back-to-back robust Employment reports; it is hard to ignore these fundamentally positive figures.
USDJPY has once again has found solid support around ¥101 however with exporters offers likely lurking in and around ¥102.5-103, we will probably need some major incitement to break this 100-102.50 range.
Yuan –A Walk Down Memory Lane
The fact there has been more chatter about last year’s PBoc Yuan devaluation than there is about today’s market landscape, speaks volumes about how well the PBoc has focused on currency stability this year. Also, from the PBoc perspective, by avoiding the spotlight, they could not be happier.
The CNH markets are doing little more than following broader USD dollar movements, and with liquidity density below average, as is typical in August, markets should remain subdued. With that said, August is infamous for market shocks and surprise, but it certainly looks like clear sailing ahead for the rest of the month.
ASIA FX –Caution Prevails
Asian currencies have taken a bit of a respite as there’s some caution swirling with the markets gearing up for another action –packed Friday There are high-risk economic news events in China and US dominating traders psyche.
Predictably the long USD Asia liquidation this week has slowed as the market move into consolidation.
Malaysian Ringgit continues to take cues from oil price gyrations, but the local markets were given a boost when June industrial production came in well above expectation, temporarily laying rest to the doom and gloom sentiment.