Last night’s price action in the US dollar and sell of in US stocks is dedicated to Frankie Valli. Oh what a night!
The USD was strong early after jobless claims fell to an almost 6 year low of 320,000 but the the absolute collapse of the Philly Fed index knocked the dollar from its perch and it lost ground across the board.
The Aussie, euro, sterling and gold were all pressured early but then reversed sharply and looked like they triggered covering on the other side of the trade such was the emphatic move. Certainly there are grounds to believe the Philly Fed was a big part of the collapse in the USD but I wonder if I have been completely wrong in that a stock sell off, which is occurring, should be good for the US dollar because clearly it was not last night.
Indeed Mathew Walter writing in the Wall Street Journal this morning says:
“The near-uniform move back and forth between risky assets and safe havens, known as the risk-on/risk-off trade, was nowhere to be found Thursday. Strong data in the U.S. and U.K. left traditional havens such as the dollar, Treasurys, German Bunds and U.K. Gilts out of favor. But the assets investors usually target when they’re feeling more bullish about growth, such as the higher yielding Australian dollar and equities, also fell.”
Which is true and the TIC data that was released last night for June showed that US assets are being sold by foreigners further supporting the idea that something is changing in respect to the US and investors view of assets.
I think where I might have it wrong – if I am, one swallow doesn’t make a summer and all that – is that if the Fed is going to taper and if this is going to put pressure on US equities and bonds then there are capital losses ahead for the owners of those assets. So it would make sense for those owners, particularly if they are foreigners, to start lightening their load and selling US assets.
This is very different to the paradigm that says the taper is good for the US dollar to which I have had a fully paid up subscription – a season ticket if you will – and it is something I need to ponder.
Either way though stocks are under pressure as I noted yesterday and they clearly broke down and through the support I showed on the chart yesterday and as you can see below.
The target is fairly clear now for a retest of the trendline which comes in today at 1605. 1645 is the 38.2% retracement support of the last upmove with further support at 1628 and 1610.
Just to recap at the close the Dow down 1.47%, Nasdaq off 1.72% and the S&P 500 off 1.45%. In the UK the FTSE had a similar time to US markets closing down 1.59% mainly because of the strong UK data which showed retail sales up 1.1% versus 0.6% expected and now running at a 3% year on year rate. But across the Channel continental European stocks closed off their lows. The DAX fell 0.74%, CAC 0.52% and IBEX35 0.58%.
Commodities were interesting with gold 2% higher, silver on a tear up 5.5% to $22.99, copper was up a little more to $3.35 lb, the Ags were again volatile with corn up 3.55%, wheat up 1.11% and soybeans up 1.61%. On the good news front though breakfast was cheaper with coffee, sugar, OJ and hogs (lean of course) all lower.
Data
On the data front Korean PPI is already out printing flat for July and -0.9% year on year and it’s the only big thing in Asia before EU wide current account and CPI tonight and then US building permits, non-farm productivity and unit labour costs to round out the week.