It was a busy morning for event traders in the majors Friday morning. The US economic calendar released reports covering personal income and spending, inflation, construction and manufacturing activity. However, it fell to the unscheduled announcement that a tariff will be placed on paper imports from China to finally set the dollar off.
By mid-day in the New York session, EURUSD was pulling back from a massive 110-point rally to the key 1.34 resistance level. Pounding through its own levels of support, USDCHF moved swiftly from 1.2235 highs to 1.2085 support in a little over an hour. After a massive 140-rally of its own, the British pound was rejected at 1.9720 resistance which would effectively mark a triple top if spot closes below the level. Finally, no stranger to volatility recently, USDJPY rounded a quick test of resistance at 118.40 before plunging into a spike low on 117.20.
Much like Thursdays abundant helping of economic data, todays calendar was fully stocked with a wide variety of reports that are typically treated as lower class numbers. The first few numbers that ran across the tapes issued sufficient surprised but failed to leverage the kind of moves that traders would expect from their fundamental implications. Printing an hour before the US capital markets opened, personal income and personal spending both printed bigger than expected 0.6 percent advances in February. Ironically, both had doubled their respective market consensuses. Aside from the promising earnings news though, the data was easily second guessed. First of all, the income data will be deemed somewhat obsolete next week when the more labor data is disseminated. Furthermore, the spending numbers seem to have been artificially boosted by bonuses and a jump in gasoline prices. In fact, when the indicator is adjusted for inflation, personal spending was actually the slowest since August. In other news, the Feds preferred measure of inflation, the PCE deflator rose 0.3 percent in February. This was the biggest monthly acceleration since October 2001. Whats more, the annual measurement is still above the central banks 2.0 percent target rate, presumably keeping the inflation warning in place for at least a few more months.
Only a little later in the session, traders digested the second wave of data. February construction spending surprised with a positive reading. Rising 0.3 percent, spending on construction projects rose the most in a year. However, the data was not a supportive of the ill housing market. Non-residential projects accounted for all of the upward momentum, since residential related building actually dropped 1.0 percent. More impressive from the list of indicators, the final regional manufacturing report offered last minute hope for ISM speculators. The Chicago-area factory activity gauge for March unexpectedly surged to a two-year high 61.7 on improvements in production and new orders. Despite all the releases though, the market reserved itself for an unexpected loosening of bureaucratic red tape. A short time after the last indicator ran across the wires, Commerce Secretary Carlos Gutierrez announced the government would impose sanctions on Chinese paper products the first time a duty has been imposed on their imports in 23 years. While this will only affect a small percentage of total trade flows, the market was more concerned that the protectionist move would instigate retaliation from the Chinese or otherwise open the door for taxes on other groups.
Though throttling back on the volatility, US equity markets were also on the move following the surprising jump in Chicago-area manufacturing and the governments imposition of tariffs on Chinese paper goods. By 16:25 GMT, the S&P 500 was furthest from its open, off 0.21 percent at 1,419.60. Elsewhere, the Dow was crawling lower on its own with a 0.09 percent to 12,337.21 while the NASDAQ Composite edged marginally higher to 2,418.83. Amid the broad action in the market, investors were still honing in on a few outlying market movers. Mobile phone giant Vodafone saw its shares drop 4.2 percent or $1.16 to $26.72 as shareholders feared an update on the firms UK operations may point to waning profit margins down the road. At the same time, Dell reported accounting errors in its books that may necessitate a restatement. Shares of dell were trading 1.7 percent lower at $22.98 on the news.
Treasuries were little moved on todays economic reports as market participants decipher how, if at all, the numbers will affect Fed policy. At 16:25 GMT, the benchmark 10-year note was trading 2/32nds lower at 99-25 with a yield of 4.560 after nudging a basis point higher. The longer-termed bond actually rose 3/32nds to 98-20 as its own yield slipped a basis point to 4.837.