Sterling crushed & stocks rise as traders wonder about rate rises after weakish data

Sterling was absolutely crushed last night falling from a high of around 1.3834 yesterday to sit around 150 pips lower at 1.6687.

That is a huge move for the world’s third most traded currency and is indicative of the pressure that interest rate expectations are having on asset prices arouond the world. It also possibly serves as a warning for the end of QE in the US – but we’ll get to that later.

Key to Sterling’s move were comments by bank of England Governor Mark Carney which suggested the pace of rate rises in the UK is going to considerable slower than the market expected. Carney also seemed to dampen the chances of a rate rise this year.

Sterling was crushed as a result.

Last nights move has taken GBPUSD to the bottom of the range we’ve highlighted and in close proximity to the 200 day moving average at 1.6657. Sterling hasn’t been below the 200 day moving average for more than a year so we’d expect that to provide some solid support initially.

Longer term a further fall of 200 points seems in the offing – we’ll see how GBP goes at the 200 day moving average first.

Elsewhere overnight it was a better night for stocks as traders shrugged off somewhat disappointing data from Asia, Europe and the US and focussed on the outlook for interest rates globally. In the US retail sales in July were flat against an expectation of a rise of 0.2% which helped US 10 year treasuries rally 3 points to 2.41% and set the scene for stocks to pop.

So at the end of trade the Dow was 91 points higher at 16,652 for a rise of 0.55%. The Nasdaq was 1.02% at 4,434 and the S&P 500 is up 13 points or 0.69% to 1,947.

In Europe the big looser of the past few days, the DAX, was the big winner rising 1.43%. The CAC was 0.79% to 4,195 while stocks in Milan and Madrid were 0.62% and 0.61% respectively.

UK stocks were only up 0.37% even though Bank of England Governor .

Globally stock index charts, as lead by the S&P 500, definitely look like the recovery might continue into week’s end given the lack of US catalysts even though European GDP data tonight will be huge.

Locally in overnight futures trade the wash up has been a solid performance with the SPI 200 Septmeber futures up 22 points to 5479.

  • Yesterday’s crash in Chinese lending was a shock as lending fell to its lowest level in July since October 2008. It prompted the PBOC to issue a statement saying that the fall was due to their oversight program and “adjustments in the property sector.

  • Equally Japanese GDP was down sharply in Q2 printing -1.7% in the quarter but the deflator which came in at +2% suggests that Abenomics is working on one front at least.

  • But Asian markets shrugged off the data as the Nikkei rose 0.35% to 15,214, the Hang Seng rose 0.81% to 24,890 and Shanghai was largely unchanged at 2,223. Today there is little out of note in Asia.

On currency markets the US dollar was stronger across the majors with Euro a little weaker at 1.3366, USDJPY at 102.44 and Sterling the huge mover down below 1.67. The Aussie is doing okay back at 93 cents as offshore investors react to the fact we’ve god stable rates here and rates offshore are perhaps not rising as much as they thought (at least that is last nights meme).

If investors think the chances of rate hikes overseas is lessened, even if just for a few days or a few weeks, then the Aussie will remain support as I wrote at Business Insider yesterday.

On commodity markets Iron ore for September delivery was unchanged at $93.25 a tonne. Newcastle September coal rose 20 cents to $70.95 a tonne.

Elsewhere Nymex crude was pretty solid given a huge rise in stocks finishing at $97.38 a Bbl. Gold is still marching on the spot at $1,312 as is silver at $19.92 an ounce. Copper is off at $3.11 a pound while the Ags had a poor night with soybeans down 1.98%, wheat fell 1.44% and corn rose just 0.21%.

On the data front today we’ll be keeping an eye on Australian consumer inflation expectations but the real focus over te next 24 hours is the raft of GDP date in Europe. Germany, France, Portugal and the EU itself will all be reporting. Tomorrow is the feast of the Assumption in many European nations so trade in Europe might close early tonight.

In the US its jobless claims and trade price index.

Greg McKenna

NB: Please note all references to rates above are approximate

To learn more about Greg McKenna, read on here.

Amazing the big drop on the GBPUSD and even though today it has stopped its decline, it may continue going lower for tomorrow or next week.

I think GBPUSD will grow up to 1,72 before the next 2 months an probably is in the minimal values or near to the minimal value that it will reach in the next 1 or 2 months.

Very good information and useful, thanks.