March 18, 2016

Markets Today: Free falling

Nothing better than Tom Petty to the end the week.

Nothing better than Tom Petty to the end the week, the USD has continued to free fall overnight pretty much against all currencies. A more dovish than expected Fed has triggered a drastic USD repricing. Our live version of the Fed broad US Dollar index shows the currency has lost 1.01% over the past 24hrs, its biggest one day drop in almost 4 years. Barring some exotic currencies, the USD is only stronger against the Argentine peso. In G10 currencies, the NZD is at the top of the leader board. The Kiwi is up almost 2% against the USD, boosted by yesterday’s stronger than expected Q4 GDP figures. Of the majors, GBP has performed relatively well.  The BoE left its policy rate at 0.5% as expected, but the minutes dampened speculation that its next move is likely to be a cut.

Looking at equity markets it is interesting to note the contrasting performance between the US, Europe and Japan. The surprisingly dovish Fed has provided a boost to US equity stocks. US equity gains have been led by industrial shares with the Dow up 1% on the day and back in positive territory for the year. In contrast, shares of European exporters weighted on the Stoxx Europe 600 index (down 0.3%) as the Euro gained almost 1% against the big dollar. Similarly, the Nikkei ended 0.2% lower with exporters also the underperformers. The yen reached an overnight low of ¥110.67, but the dip sub 110 was short lived, as talk that the BoJ was checking rates, quickly lifted the pair by over a big figure. Abenomics and the BoJ strategy to reflate the Japanese economy are now looking even harder following the strengthening in the yen and fall in the Nikkei.

The drop in the US dollar overnight has effectively triggered a repricing in commodities (USD denominated). WTI oil is back above the $40 mark for the first time since 4 December 15, gold is 2% and iron ore is up 4.7%, ending the day at $56.

In other news, Norway’s central bank cut its main interest rate by 25bps to 0.5% in order to boost its oil dependent economy. Looking ahead, however, the Bank noted that it needed to tread carefully from here as the effects of taking rates closer to or below zero remained unclear. Meanwhile the SNB maintained its policy rate and the non-committal accompanying statement offered no hints of further easing.

US data was mostly better than expected, but it did little to stem the fall in the USD. Jobless claims printed at 265k vs 268kconcensus. JOLTs job openings came in better than expected, but there was a downward revision to the previous print. Philly Fed followed the recent trend in the recent regional surveys and bounced back much more than forecast to 12.4 from -2.8 in February.

Coming Up

It a quiet end to the week in Australia with no data releases slotted for today. RBA Luci Ellis is due to speak at a Risk conference in Sydney and the title of her speech is “Booms, Busts, Cycles and Risk Appetite”.

Just after mid-day, China releases property prices for February and later in the day we get Germany’s PPI figures along with labour cost numbers for Q4.

Capping the week in terms of data releases we have the preliminary March reading for the U. of Michigan consumer Sentiment. February US retail sales figures released earlier in the week were weaker than expected and the strong downward revisions to January were also a disappointment. As such, the consumer sentiment reading for March will be important in assessing whether the soft demand seen in the first two months of the year was just a temporary blip or whether the US is seeing a more prolonged moderation in household demand. That said, the recent pick up in the equity market performance suggest we are likely to see an improvement in sentiment in March. Note too that the survey also includes a reading on inflation expectations and it will be interesting to see if we see a pickup in those numbers too. The February reading for the 5-10y inflation expectations printed at 2.5% and it equalled the lowest record on the time series.

Now that the FOMC meeting is behind us, Fed speakers are back on the road and tonight we have Fed Dudley and Rosengren on the speaking roster. Both are attending a Supervision conference, so comments on monetary policy might be limited. Fed Bullard instead is speaking in Frankfurt and given that he is delivering a presentation at a monetary policy conference his remarks are more likely to be of interest.


On global stock markets, the S&P 500 was +0.70%. Bond markets saw US 10-years -1.05bp to 1.90%. On commodity markets, Brent crude oil +2.45% to $41.32, gold+2.2% to $1,257, iron ore +4.7% to $56.09. AUD is at 0.7643 and the range was 0.7534 to 0.7657.

Good luck,

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