Stocks and the Aussie Dollar came under pressure from weak data and we think the Fed’s statement that said they could “increase or reduce” the pace of its bond buying program which implies we think they recognise that the sweet spot of growth that seemed to pop up a few months back might have evaporated.
But the canary in the coal mine, as the team at Business Insider put it last night, was the release of the Korean export data which while positive was much weaker than expected printing just 0.4% YoY against the punditry’s 2% expectation. Clearly Korea has close ties with Japan and China and clearly Korea is a good lead on overall global trade so this data is a concern.
Add in a bit of weakness in the ADP employment survey which undershot with a 119,000 print against the 150,000 expected and the ISM manufacturing PMI which fell to 50.7 from 51.3 last month. It has been and remains our hypothesis that the Fed and others free money is goosing stocks higher but in the end the economy is where it is at and for assets like the Australian dollar which are still tied to the global growth outlook and perceptions of the miracle that is the Australian economy is vulnerable from this economic weakness.
Indeed stocks should be vulnerable too and at some point they will likely reacquaint themselves with reality. Last night saw a little bit of reality creep into stock traders minds with the Dow off 0.94%, the Nasdaq down 0.89% while the S&P was 15 points or 0.91% lower at the still heady heights of 1583. In Europe the FTSE was higher on the back of bank moves up 0.32% while the continent was largely closed for May Day.
Turning to the Aussie then and the weakness in the data which was accompanied by a massive 3.83% drop by Dr Copper and a 2.63% fall in the price of Nymex crude which is suggestive to us that the worm is really turning for the growth bulls or at least the outlook. The Aussie itself dropped over 1 cent from a high of 1.0382 yesterday to 1.0262 low overnight. It is sitting at 1.0277 as we write.
The Aussie looks biased back toward the low of the past few weeks at 1.0219 and should it close the week below this level then it would certainly suggest that the big weekly uptrend we highlighted back on Mondayand turn the outlook significantly lower.
It is worth noting also that the AUDCAD level we highlighted yesterday crashed through and as I tweeted at the time I just love this trade.
Our target is 1.0233 for this cross.
Turning to the Euro it managed to hit 1.3242 at one stage overnight but has since sunk back to 1.3182. The candle is a warning to the bulls that momentum might have stalled and this certainly makes sense given the ECB meeting and announcement tonight where the market widely expects rates to be cut. In the face of this expected cut the Euro’s strength has been baffling but then again the data from the US hasn’t been so flash the past little while which is clearly what they FX markets have been focused on.
USDJPY looks to us to be biased lower still although it is steadfastly flirting with but rejecting the break of 97 which is necessary to accelerate things to the downside.
On commodity markets as discussed the fall in Copper was simply huge and it continues to signal a rethinking on the outlook for global growth. Gold has backed off the resistance zone of 1475 we highlighted a week or two ago falling 1.76% or about $25 to $1451. Silver was off 3.47% to $23.53 and Nymex crude was down 2.72% on the back of the huge build in stocks which rose 6.696 million Bbls against the expectation of just a 0.8 million build. In Ags Corn was 0.15% lower with bigger falls in wheat and Soybeans which dropped 1.56% and 2.06% respectively.
Data
In Australia building permits, export and import prices and then tonight the ECB interest rate decision and initial jobless claims.
Thoughts, comments, queries together with frank and fearless feedbackall welcome. I’m happy to answer questions or comments on the comment stream wherever I can.
NB: Please note all references to rates above are approximate and should not be used for trade reference