A break from an active economic calendar has proven to be a boon for the US dollar. With only a few disappointments from second-tier US indicators Thursday morning, the dollar was able to rebound on another bout of risk aversion that was triggered by Chinese growth and inflation numbers that are expected to draw investment curbs and a withdrawal of liquidity that threatens to cause ripple throughout global markets.
By mid-New York session, EURUSD had given back most of its dollar gains after pulling up from its 1.3560 low and working its way back towards its recent two-year high. Alternatively, USDCHF was holding on to most of its 60 point intraday gains after putting in a weighty low at 1.20. Dollar gains were also sticking against the British pound as the market deliberates whether 2.0 is new support or not. Finally, USDJPY took the most heat from the Chinese data though 100-point dip to 117.60 was fully retraced later in the session as traders decide they are not yet ready to give up on the carry trade.
Though there were a few minor US economic indicators scheduled for release Thursday morning, the dollar had already found its fundamental step before capital markets even opened up for business. Asian markets were turned on their head in the overnight after Chinese officials said they would delay the growth and inflation reports until after the close. This warning meant only one thing to savvy traders - hot numbers which would likely lead to a tightening of monetary policy and possible investment curbs. Those reacting before the news actually hit the wires were vindicated when the first quarter GPD read hit the wires with an impressive 11.1 percent pace while the CPI figure printed a 3.3 percent pace that is the hottest in over two years. The threat that Chinese officials would remove liquidity and slow production was what shook the global economy. Should China move to sop up some of the excess liquidity in the market, passive investment in strategies like the carry trade becomes a risky venture on the threat of higher volatility. On the other hand, the markets have not responded to this data with the same intensity as the late-February correction that began with Chinese regulators warned that they were moving in to limit local investment through borrowed funds. Whether this is because investors are more confident this time around or that they are waiting for the actual fall out from the government has yet to be determined.
Back in the US, the economic offerings were light but meaningful. The anchor release for the day was the Philly Fed survey for April. According to the groups numbers, manufacturing activity in the region was unchanged this month as a big drop in expected investment and boost in input prices offset a small rise in new orders and employment. For the sentiment, the indicator fell short of expectations of a rise to 2.0 with its 0.2 print. Though, the steady print from March matched that seen in the previously released Empire survey, perhaps suggesting the factory sector is stabilizing. Elsewhere, the leading indicators index marked the first positive reading in three months. The forecast of positive growth for the coming three to six months is a welcome sign considering growth has struggled in recent quarters. Conversely, todays employment figures have dimmed one of the economys bright spots. Expected to drop 22,000, first-time jobless claims for the week ending April 14th only fell by 4,000 to 339,000. If labor trends wane, it would knock one of the strongest pillars of growth left for the worlds largest economy.
Initially riding a bear wave that was spreading through Asian and European stock markets, US equities opened sharply lower Thursday morning. However, as the day wore on, promising earnings numbers helped pull the benchmark indices back towards the black. By 15:30 GMT, the NASDAQ Composite was holding the biggest drop with a 0.19 percent dip to 2,502.62. The S&P 500 was off 0.14 percent at 1,470.40 while the Dow was climbing fast though still in the red by 0.13 percent at 12,787.66. From the top market movers list, the blue-chip Altria Group was trading lower after releasing first quarter numbers that were below year-over-year levels. Shares of the conglomerate were off 1.2 percent at $69.24. For the financial sector, Bank of America reported first quarter adjusted income that was two cents above the markets expectations. Nevertheless, BoA shares were trading 1.8 percent off the open at $50.89. Schering-Ploughs 52 percent surge in first quarter profit was nothing but positive. Shares of the pharmaceutical were recently quoted 8.3 percent or $2.38 higher at $30.93.
The small move in Treasuries offered further proof that the risk aversion off of Chinas growth and inflation data was not as intense as the February incidence. Ten-year notes were 3/32nds off the open at 99-22 with a yield a basis point higher at 4.662 by 15:30 GMT. Longer-termed bonds were down 10/32nds at 98-20 with yields up 2 basis points at 4.836.