Macro Morning: US yields threaten recovery

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A couple of week’s back I asked if the Aussie dollar low was in and since then the Aussie has rallied pretty well even as I’ve been on the wrong side of it. But there is an emerging sign that the data globally is picking up and if that is the case then it is unlikely to be just a story of US dollar strength as I thought it might be a month or so back.

Indeed the ability of European stock markets to do their own thing last week and of gold rather than the US dollar to be the primary beneficiary of the stock market swoon suggests that there is a change in market sentiment occurring and one that might be very important for trends over the next few months, mainly in FX markets I guess but equally for European sovereign CDS and bonds and European stocks.

The story of the moment is the surge in US long yields with the 10’s rising to 2.86% at one stage on Friday night before closing a little lower at 2.83%. The 30 year also leaped to new highs at 3.89%. The question is how high will these rates rise and how much impact will it have on the nascent recovery. Indeed, the fall in consumer confidence to 80 from 85 last in the US is suggestive of the impact as was the slight undershoot of some housing data released Friday.

US 10’s are now more than 1.2% higher than where they were back in May and we must say that if there was a stock sell off of this magnitude in percentage terms there would be panic all over the Street.

Unsurprisingly stocks in the US were buffeted by this and while they ended off their lows were still under pressure with the Dow down 0.21%, Nasdaq down 0.09% and the S&P 500 closing at 1656 off 6 points or 0.32%.

Europe didn’t care though with gains in the UK (+0.26%), Germany (+0.19%), France (0.75%), Italy (+1.23%) and Spain (+0.95%) all higher as recovery trumps US bearishness.

On global FX markets it was another day of volatility while markets danced on the spot. Believe it or not the US dollar actually closed the week stronger against the euro (1.3329), yen (USDJPY 97.53), Aussie (0.9185), Swissy(0.9265) and Loonie (1.0336) with only the pound moving higher last week up 150 points to 1.5629.

I wonder if the Aussie is going to surprise and break higher or just spend an extended period consolidating between 88 and 93.5 cents. Unless or until the latter price gives way it’s just a range but with positioning at extremes and global growth looking a bit better buyers might be more  pre-disposed to buy Aussie.

Recently the Aussie has built a base at the bottom of the big weekly channel we identified a couple of weeks ago and last week tested back towards the break up point of 0.9035. Quite frankly I have been trading very poorly and have been caught the wrong way so I am hoping that the RBA is a bit more dovish in the minutes to be released tomorrow morning so I can get out on the down draft.

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0.9350 is still the key level as you can see in the chart above and all my stops on dodgy shorts are up there but I’ll probably be trying to get out as soon as I can this week and then we might just be in for a run to 95 or 96 cents.

On commodity markets gold is up another $10 to $1376 oz, silver had a huge week and closed at $23.21, crude ($107.68) was largely unchanged and copper rose 0.79% to $3.37 lb. Our friends the Ags continued their volatility with corn and wheat both down more than 1% while soybeans were 0.39% lower.

Data

On the data front a curiously barren week with periods of activity. Today we have NZ PPI, Japanese Trade, Australian New Motor vehicle sales and a couple of bill Auctions in the US. But the key data will be RBA and Fed minutes and all of the HSBC and Markit PMI’s and don’t forget jobless claims which are at 4 year lows. Watch out for all of these when trading.

Comments

  1. Tiliqua scincoidesMEMBER

    So the dollar looks set to rally further depending on the tone of the RBA & Fed mins.

    The policy settings here would also appear to be supporting the AUD to stay at current levels.