Macro Morning: Dectaper


A very interesting night on markets and particularly FX markets Friday after the non-farm payrolls missed to the downside printing just 162,000 rather than the 184,000 that the market had expected. The disappointment ignited some serious US dollar selling across the board. What was striking by the end of play however was just how poorly the Aussie dollor, the Kiwi and the Loonie did relative to the big three of the yen, euro and sterling.

I’ll come back to the FX market in a little. First let’s have a look at the stock market performance which was indicative that the data matters less than the notions of taper or no taper. Indeed the S&P took a solid hit after NFP but recovered to close on its highs for the day up  +3 pts or 0.18% @1,710.

One thing that was obvious is that notions of Setptaper are becoming Dectaper or even NextTaper as in next year, 2014.

In Europe  markets missed much of the US rally closing flat to down mostly. The FTSE fell 0.51%, the DAX a marginal 0.04%, the CAC rose a tiny 0.08% while in Milan and Madrid stocks where down 0.24% and up 0.40% respectively. But these markets are very close to if not exceeding all time highs.

It’s not earnings or economics that matter – but low rates forever and central bank balance sheets.

Turning back to global FX markets and the immediate impact that the US jobs undershoot:

Markets around NFP

Two things are evident in the price action of these markets:

  • the USD took a swift kick in the tail against the all the FX pairs losing ground against AUD, EUR, GBP, JPY and Gold (I’m placing this in the FX basket as a currency proxy), and
  • unlike the rest of the pairs the Australian Dollar gave back its gains in a heartbeat and after a volatile period was weaker into the close.

What you don’t see here is that the Kiwi and the Loonie also reacted like the Aussie so what we like to refer to as the “Commodity Bloc” completely under performed the market if I can term it that.

The key message here is that there is a growing feeling in markets that the commodity super-cycle has ended, or is at least in hiatus, and as such traders are moving back into the bigger safer pairs.

And why not? Check out this chart of the Citibank Economic surprise index of the BRIC economies – it is a shocker!

Citi Eco SUrprise Index BRIC's

Easy to see why the commodity bloc is and will under perform and when you add in a bit of distinct Australian economic woes themselves easy to see why AUDNZD is so weak.

It is easy to make the case that the Aussie should fall forever. But in this morning’s CFTC Commitment of Traders Report, you’ll see that the Big Speculators (as reported on Bloomberg) are the most short they have been in Aussie dollars for all-time. It is a decent position representative of the wider speculative community who have been selling Aussie with gusto now for a while.

My view is that the Aussie will go lower, into the 80/83 zone, in the year ahead but I wonder if maybe some sort of support might be found soon? Already the Aussie achieved our target of 0.8916 making a low on Friday night of 0.8870 and there are tentative signs that the Aussie is going to find support in the 88 cent zone for a bounce:

aud, audusd, australian dollar, australian dollar price quote, audusd weekly

It is too early to say based on my system so this qualifies as a feeling rather than an opinion and I will update over the next few days.

On commmodity markets gold had a wild and crazy day falling to $1283 before bouncing back to close at $1307 oz (much damage was done to the bull case), Nymex crude fell 0.88% but copper rose a smidge to $3.16 lb. The grain complex had another big day with corn down 2.36%, wheat up 0.38% and soybeans down 1.97%.


On the data  front it’s a bank holiday in Australia so FX and Bond markets will be very quiet but that doesn’t stop the releases from flowing with the TD monthly inflation gauge as well as retail sales in Australia. In China we have the HSBC Services PMI to follow on from the official non-manufacturing PMI over the weekend. In Japan we get the BoJ’s economic survey and then in Europe and the US we get the Markit and ISM non-manufacturing surveys.

Twitter: Greg McKenna

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  1. London Gold Forward rates are negative (20 days running so far, breaking 2008’s 3 day record), Comex futures are in backwardation now, appears JPM are keeping the majority of gold deliveries in-house and now bullion banks are net long on PMs.

    Make of that what you will? On a selfish note, wondering how the AUD will fare against different currencies?

    Seems like the most ground has been made against the GBP with a 20p gain from ~40p historical to ~60p. There’s a whopping 33% potential downside there, though the UK is in the toilet economically. Against the USD it’s probably another 20c (22% fall). EUR is far less dramatic than either, only 10c spread which would be a 15% drop.

    Going to Europe/UK for work and visit family so going to lock in the rates now ;P