Legitimately Crying Over Spilt Milk Prices

European equity and currency markets diverged from one another today as the FTSE, DAX, and CAC all recovered from early squandering to finish comfortably in the green, while currencies like the EUR, GBP, and CHF languished against the USD. News events were nary a reason for most of these moves, at least out of Europe, as price action from Asia, and eventually North America, swayed markets to bookend lackluster European trade.

Arguably the biggest news of the day came out of New Zealand whose main milk cartel, Fonterra, forecasted significantly lower future prices for their creamy product from $7.00 to $6.00 per kgMS. While that calculation may not mean much to an everyman like you or I, it represents a total drop in payments to Kiwi farmers of about $1.6 billion; and from the peak price of $8.40 last season, it represents a loss of around $4.3 billion or 1.9% of New Zealand’s GDP. Needless to say, the Reserve Bank of New Zealand most likely won’t be raising interest rates again at their next monetary policy decision as they already acknowledged last week. In response, the NZD/USD tumbled about 50 pips and threatened perceived stops below the 0.85 level, but is currently hovering there as I go to press. If it were to break, a more significant fall could be in order as the last vestiges of NZD bulls abandon their posts.

Providing even more reason for a positive run for the USD and equities in general was the Conference Board’s US Consumer Confidence which increased for the third consecutive month and reached its highest level since October 2007. This was in contrast to the Preliminary UM/Reuters Consumer Sentiment report of 11 days ago that did improve upon the previous month’s result, but doesn’t appear nearly as optimistic as the CB’s report. The Revised version of UM/Reuters Consumer Sentiment will be released on Friday well after the trade attention gathering Non-Farm Payroll report could render the UM figure as impotent; however, a higher reading than the initial could signal a renewed fervor in the US population leading to potentially stronger Retail Sales figures in early August.

Circling back around to European data releases, the UK garnered most of the subdued attention as Net Lending to Individuals declined to 2.5B from 3.0B previous, and Mortgage Approvals jumped to 67k from 62k previous. The GBP/USD initially spiked back toward 1.70, where it had a difficult time transgressing yesterday, only to fall back toward 1.6940 as USD strength came to dominate. The EUR/USD also fell victim to USD domination, getting to within 10 pips of the 1.34 barrier. Much like the Kiwi, if the euro were to tumble below that demarcation line, a more significant move may be in order as contrarians scramble out of their long euro positions.