The greenback opened the second quarter under pressure as the market absorbed a weaker than expected ISM manufacturing report and a verbal retaliation from China over the US Commerce Departments tariffs on its imported paper goods.
By mid-day in the New York session, the majors were largely mixed. Since the anti-dollar run on Friday, EURUSD was carving out a stint of consolidation with a brief touch low at 1.3330 and a range high forming at 1.3380. For USDCHF, price action was well defined by a 20-point wide channel that guided the pair from 1.2175 to 1.2120. Loosing its direction, but retaining its volatility, USDJPY was moving towards the apex of a symmetrical triangle that recently had a top and bottom at 117.85 and 117.55 respectively. Finally, the British pound capitalized on the quiet dollar trading during the London session. Heated speculation of an impending rate hike from the BoE helped drive GBPUSD over 135 points from overnight lows to a test of 1.98.
For the past two weeks, regional factory activity reports guided speculation for todays nationwide report. Until last Friday, the data was clearly foreshadowing a modest to sharp decline throughout the US. The Empire Manufacturing survey offered the most convincing support to a weak ISM print when the indicator unexpectedly dropped to its lowest level in 22 months. Lacking the luster of the Empire read, but weighing on the outlook nonetheless, both the Philly and Richmond Fed numbers had also missed their official consensuses. The Philadelphia-regional report edged down to closer to the expansionary/contractionary 0.0 level, while the Richmond number was submerged for the fourth consecutive month. Traders were almost fully pricing in an ISM drop until Friday when the Chicago PMI for March jumped to a two-year high. This allowed for some reaction in the currency market when the Institute for Supply Managements manufacturing report printed below predictions with a 50.9 number. From the component data, the production and new orders sub-gauges cooled modestly; but managed to keep within growth territory. Producing some level of surprise, the prices paid report jumped to its highest level in seven months, rousing the hawkish Fed watchers. Conversely, the employment component dropped to its lowest level in nearly two years. This weakening labor trend maybe the first signs that the slump in housing and construction is spreading to other sectors.
The other headline for the day was the expected response from China following the US Commerce Departments to impose tariffs on all paper products imported from the Asian nation. Officially, Chinese officials called for the US to revoke the duties, but did not specify any methods of retaliation they may take. While there is little heat underlying this issue as of yet, it may quickly pick up steam and drive the dollar. Should the protectionist agenda spur an official response from China, they could easily tack on their own tariffs onto US goods or use its massive reserves as a weapon. Looking ahead to tomorrow, the only noteworthy indicator on deck is the pending home sales report for February. However, without a considerable surprise, it could easily be overlooked since existing and new home sales numbers offer more prescient readings on the housing market.
The equities market was rather volatile Monday morning, though there was little agreement on direction among traders. By 15:00 GMT, the NASDAQ Composite saw the biggest change from Fridays close in a 0.15 percent slip to 2,418.10. At the same time, the S&P 500 was 0.06 percent higher at 1,410.69, while the Dow added 0.05 percent to 12,360.61. Amongst the top market movers, a few blue chips were breaking into the mix. Consumer goods conglomerate Altria Group marked a pickup in share value on the first day that Kraft Foods and Altria shares traded separately. Altrias value was up 3.1 percent to $67.93 while Kraft Foods shares were off 2.7 percent at $30.79. Elsewhere, the M&A column in financial journals had another big deal to report on. Leveraged buyout firm KKR put in $29 billion bid for First Data Corp, though the company will hold out on accepting the offer for 50 days to allow for competing bids. Shares of First Data surged 20.9 percent or $5.63 to $32.53.
After a soft manufacturing survey hit the wires with a buoyant inflation component, Treasuries were little moved from last weeks close. The ten-year note was trading 1/32nd higher at 99-28 at 15:00 GMT with a yield of 4.638 after loosing a basis point. Bonds were lifted 5/32nds to 98-22 while their yields were also off a basis point at 4.832.