Intraday Market Thoughts

Risk Rips ahead of Super-Tuesday Vote

by Adam Button
Mar 2, 2016 0:03

Risk trades roared Tuesday as the new month and solid US economic data sparked a jump in USD/JPY and stocks. The Canadian dollar was the top performer while the yen lagged. A key slate of US primaries and Australian GDP are due later. The long DAX trade in the Premium Insights was closed at 9774 for 254-pt profit to prevent any erosion of gains as the index tests the December trendline resistance shown in the Premium section and this evening's Video on indices. Renewed entry will be re-assessed.

Risk Rips ahead of Super-Tuesday Vote - Videosnapshot Mar 1 (Chart 1)

The new month attracted a wave of money into stocks that was further boosted by sold economic data. The Feb ISM manufacturing report was at 49.5 compared to 48.5 expected while construction spending rose 1.5% vs 0.3% forecast.

USD/JPY immediately rose 70 pips and then tacked on another 70 later to hit 114.20. Commodity currencies were lifted by a positive risk environment that included a 46 point rally in the S&P 500 as it broke above the Feb high.

The main events in the hours ahead focus on Australia and the United States. Fourth-quarter GDP data will probably have less of an impact than usual because the RBA would have seen the numbers before their decision. It's due at 0030 GMT and the consensus is for a +0.4% q/q gain but the breakdown could provide some insights into the economy.

Along those lines, Canada released Q4 GDP numbers earlier and reported a 0.8% q/q annualized gain compared to a flat reading expected. The Canadian dollar jumped 70 pips on the release and was boosted further by oil. As in the case of the US GDP revision, the internals of the CAD GDP report were less rosy than the market suggested. Imports fell 8.9%, the most in six years. Business investment also declined 6.5%. The conventional thinking is that a soft currency boost exports and that might be true in the long-term but empirical data shows time and time again that the bigger effect is falling imports.

The same thing was true in Japan where Kuroda will appear in Japanese parliament today.

The main story in markets is likely to be the Super Tuesday US primary slate. The intrigue is likely to be on the Republican side where Donald Trump is a heavy favourite to win almost every state. One exception is Ted Cruz's home state of Texas but if Trump wins it or comes close, it's difficult to imagine he won't win the nomination.

Markets haven't had much of a chance to ponder a Trump Presidency or the likelihood of an ugly election campaign. There is also the risk that the Republican establishment sabotages Trump and triggers a backlash, but so far all they have done is pontificate as the Trump freight train speeds across the nation. In the big picture, a period of volatility in US politics is coming and that's unlikely to help risk trades.

Act Exp Prev GMT
Gross Domestic Product (Q4) (q/q)
0.5% 0.9% Mar 02 1:30
Gross Domestic Product (Q4) (y/y)
2.6% 2.5% Mar 02 1:30
ISM Index (FEB)
49.5 49.0 48.2 Mar 01 15:00
Construction Spending (JAN)
1.5% 0.5% 0.6% Mar 01 15:00

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