China's decision to cut rates for the first time in two and a half years triggered a classic play of boosting global equities, commodities and their currencies, reinforcing investors' preferred play of shorting EUR and GBP vs the Canadian dollar. Full charts & analysis
The US dollar got the news it needed but the market wasn't impressed, that could be an early warning sign. The Canadian dollar was the top performer while the euro lagged. The Asia-Pacific calendar is quiet after a busy week. Our Premium trades include EURGBP, GBPCAD and USDCAD ahead of tomorrow's Canada CPI figures.
The shock of the day came with the Philly Fed rising to the highest since 1993. The index hit 40.8 compared to 18.5 expected – an 8.9 standard deviation miss.
Earlier, US CPI rose 1.7% y/y compared to 1.6% y/y expected. At the same time, existing home sales rose to 5.26m compared to the 5.15m consensus.
In every case, the US dollar kneejerked 20-50 pips higher but in every case the gains quickly evaporated. When an asset can't rally on good news, what will make it go higher?
The dollar has been hit by profit-taking on successive Fridays so some short-term caution is warranted but ultimately, the dollar bull market is showing no signs of slowing so dips will be buying opportunities at some point or another.
Another source of concern is in bonds as yields bleed lower. US 10-year yields hit 2.30% before recovering to 2.33%. A break of the 2.27% November low may cause some dollar concerns.
Technically, USD/JPY and EUR/JPY finished close to flat after hitting fresh cycle highs. The daily candlestick patterns may be an early signal of a falling star formation.
Focus remains on EUR/CHF after Zurbrugg affirmed the central bank will defend the floor with utmost determination. That led to another short-term bump but it's challenging to envision a more-lasting rally at least until after the Nov 30 referendum.
Looking ahead, there is very little on the Asia-Pacific (or US) calendar in the day ahead so watch out for some minor position squaring.
|BoC CPI Core (OCT) (m/m)|
|0.2%||0.2%||Nov 21 13:30|
|CPI (OCT) (m/m)|
|-0.2%||0.1%||Nov 21 13:30|
|CPI - Core (OCT) (m/m)|
|0.3%||Nov 21 13:30|
|BoC CPI Core (OCT) (y/y)|
|2.2%||2.1%||Nov 21 13:30|
|CPI (OCT) (y/y)|
|2.1%||2.0%||Nov 21 13:30|
|Existing Home Sales (OCT) (m/m)|
|1.5%||-0.4%||2.6%||Nov 20 15:00|
|Existing Home Sales (OCT)|
|5.26M||5.15M||5.18M||Nov 20 15:00|
|Philadelphia Fed. (NOV)|
|40.8||18.5||20.7||Nov 20 15:00|
Today's flurry of manufacturing and services surveys from the US, China and Eurozone confirmed what the market had suspected; a cooling off in the pace of expansion in US manufacturing, despite remaining the highest rate in the G7 --, while both Germany and China eked out an expansion, albeit at a slower pace, as did the pan-Eurozone measure of both sectors. France remained in contraction territory. Full charts and analysis.
|Markit US Manufacturing PMI (NOV) [P]|
|54.7||56.3||55.9||Nov 20 14:45|
|PMI (NOV) [P]|
|50.0||50.3||50.4||Nov 20 1:45|
|Eurozone Markit PMI Manufacturing (NOV) [P]|
|50.4||50.8||50.6||Nov 20 9:00|
|Eurozone Markit Services PMI (NOV) [P]|
|51.3||52.4||52.3||Nov 20 9:00|
|Eurozone Markit PMI Composite (NOV) [P]|
|51.4||52.3||52.1||Nov 20 9:00|
|France Markit PMI Manufacturing (NOV) [P]|
|47.6||48.8||48.5||Nov 20 8:00|
|France Markit Services PMI (NOV) [P]|
|48.8||48.5||48.3||Nov 20 8:00|
|Germany Flash PMI Manufacturing|
|50.0||51.5||51.4||Nov 20 8:30|
0.8542 is the key level in AUD/USD. Not only is that the November low, it's also 50% of the 2008-2011 rally. With spot at 0.8618, that's a comfortable cushion but stops below Wednesday's session low of 0.8602 could cascade in a quick move lower.
If that happens in the day ahead, the catalyst would almost certainly be the HSBC China PMI due to be 0145 GMT. The consensus is for a slip to 50.2 from 50.4 but a fall below the 50 threshold would spark some worries.
The Fed mentioned fears of a Chinese slowdown in the FOMC minutes and that could become a mainstream fear. Concerns about China have been falsely raised so many times in the last 6 years that traders have tuned it out. The market may have grown complacent and often that's the time to be most on guard.
Xinhua reported on the weekend that Chinese electricity consumption was up just 3.1% y/y in October. There have been some efforts to save energy but it raises eyebrows in an economy that's supposedly growing close to 7.0%.
Other numbers to watch in the hours ahead include Japanese trade data at 2350 GMT. Exports are expected up 4.5% and imports up 3.4% but after the dismal forecasting effort from economists in the GDP data, the market will be skittish. Some estimates on imports are as low as -3.0%.It will be interesting to see how the yen reacts to poor data. We're likely nearing the point where bad news also hurts the yen, at least domestic bad news.
|Markit Manufacturing PMI (NOV) [P]|
|56.4||55.9||Nov 20 14:45|
|Nomura/ JMMA PMI Manufacturing (NOV) [P]|
|52.4||Nov 20 1:35|
|PMI (NOV) [P]|
|50.3||50.4||Nov 20 1:45|
|Exports (OCT) (y/y)|
|4.5%||6.9%||Nov 19 23:50|
|Imports (OCT) (y/y)|
|3.4%||6.2%||Nov 19 23:50|
Sterling gets a boost after the BoE minutes surprisingly revealed a more hawkish view on inflation, despite the vote remaining a 7-2 split majority in favour of holding rates unchanged at 0.50%. But don't bet on today's release of the minutes from the Fed's October meeting doing the same for the greenback. Full charts & analysis here.