Markets Today: Burning down the (White) house

In G10 FX, AUD and SEK were the only two currencies to buck the trend of a falling US dollar.

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More of the same for currencies and bonds on Friday, the US dollar continuing to leak lower alongside US Treasury yields. Latest news out of Washington helping maintain the bearish dollar tone was the resignation of white House press secretary Sean Spicer, after telling President Trump he vehemently disagreed with his appointment of Anthony Scaramucci, a New York financier, as his new communications director.

US stocks went out with a whimper Friday, the S&P -0.04% for a fall of 0.3% on the week.  The VIX made a new post-1993 record closing low of 9.36 (-0.22 on the day and -0.15 on the week).  In contrast, the latest leg up in the Euro took a fresh bite out of European stocks, the Eurostoxx 50 off 1.37% and down 2.1% on the week

In G10 FX, AUD and SEK were the only two currencies to buck the trend of a falling US dollar, in the Aussie’s case thanks to Guy Debelle’s comments during the local session on Friday making clear both that the higher rates weren’t on the radar here and that a lower AUD is desirable.  In index terms the DXY lost another 0.48% to 93.858 and BBDXY -0.26% to 1161.86 (92 and 1150 are the critical technical levels here).  DXY is 1.36% lower on the week and the BBDXY 0.9%.

AUD/USD ended NY -0.58% at 0.7916 (back from its intra-week high of 0.7989 and still up just over 1% on the week). The NZD and JPY just about tied for top place on the G10 scoreboard, NZD/USD +0.76% to 0.7454 and USD/JPY -0.70% to ¥111.13.  EUR/USD gained 0.28% to 1.1663 and is 1.68% up on the week.  It wasn’t much moved much by a Reuters source story that ran during the London morning that European Central Bank policymakers see October as the most likely date to decide on the future of the ECB’s asset buys and consider December; an option flagged by staff, as too late.

GBP/USD gained 0.18% to 1.2997 but is the only currency to lose ground against the USD last week (-0.77%). USD/CAD fell 0.4% to 1.2539, broadly in line with moves elsewhere after a small downside CPI surprise but upside retail sales surprise.

In rates, US Treasury yields continue to leak lower, 2s -1.2bp to 1.342% (-1.6bps on the week) and 10s -2.2bps to 2.238% (-9.5bps on the week.   Bunds lost 2.4bps to 0.506% and were down 9.1bps on the week.

In commodities, crude oil fell on Friday after a report OPEC crude supply this month will be the highest since December as members including Saudi Arabia and Nigeria increase shipments, according to tanker-tracking firm Petro-Logistics SA. The Baker Hughes weekly US rig count fell by 1 to 764. WTI fell by $1.00 to $45.77 and Brent by $1.20 to $48.06.  Gold gained $9.40 to $1,254.90 to be $27.40 up on the week. Iron ore fell by 90 cents to $67.14 and versus Wednesday’s high of $70.24, but still ends the week with a gain of $1.40.

Coming Up

After RBA deputy Governor Guy Debelle did a good job of containing AUD/USD strength on Friday, we wonder how long that will last if the US dollar continues to lose ground. There doesn’t look to be much to stand in the way of this, in which case AUD/USD is unlikely to extend beyond Friday’s lows at least ahead of RBA Governor Phil Lowe’s lunchtime speech in Sydney on Wednesday.

Governor Lowe is speaking on the labour market and monetary policy.  This should be very policy relevant, after Deputy Governor Guy Debelle laid out the global influences impinging on domestic monetary policy on Friday and made clear there was no imperative for the RBA to be following the trend towards less accommodative monetary policies elsewhere in the world, given the RBA didn’t ease as much as others previously.

Australia’s Q2 CPI is also due on Wednesday.  We expect the CPI to be in line with RBA expectations, with steady headline inflation at 2.1% y/y (0.4% q/q) and underlying inflation at 1.7% (0.4% trimmed mean and 0.5% weighted median), in line with the RBA’s 1¾% May SoMP forecast. The only other data point of note is export and import price indexes for Q2, out Thursday, helping firm up expectations for the terms of trade and net exports.

Offshore, the US and UK both release first looks at Q2 GDP, the US expected at 2.5% after 1.4% in Q1 (also keep an eye out for benchmark revisions).  There’s also Existing/New Home Sales, Consumer Confidence, Durable Goods Orders and Employment Costs. The Fed’s Kashkari speaks, Fed Governor nominee Quarles has a Senate confirmation hearing and Trump’s son in law Jared Kushner testifies today and tomorrow.

The FOMC can be guaranteed to leave rates on hold on Wednesday, the only question being whether they decide to firm up guidance on when they expect to commence the process of balance sheet shrinkage (unlikely).  The IMF releases refreshed global growth forecasts on Monday ahead of their spring meetings in Malaysia, while the OPEC/Non-OPEC Joint Monitoring Committee also meets on Monday.  UK GDP is expected at 0.3% q/q. The main Eurozone data of interest will be today’s preliminary PMIs, expected to be strong.

Overnight

On global stock markets, the S&P 500 was -0.04%. Bond markets saw US 10-years -2.14bp to 2.24%. In commodities, Brent crude oil -2.52% to $48.06, gold+0.8% to $1,255, iron ore -1.3% to $67.14, steam coal -0.3% to $86.45, met. coal +0.0% to $164.00. AUD is at 0.7905 and the range since Friday 5pm Sydney time is 0.7875 to 0.7959.

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