US dollar getting stronger signalling a change in the global macro landscape

A change is afoot, its subtle and quiet but it feels real this time with the US dollar the big mover for mine over the past few days and week.

Sure the hoopla around the new all time highs in the S&P gets the headlines but it has been the quiet drift to 2014 lows for the Euro and reversal of the Pound, with Sterling back below 1.70, which is the big emerging story.

The reason this needs to be on traders radar is that currency traders are clearly sniffing something in the wind about the health of the US economy vis a vis other economies. Something to watch.

On this front Euro looks like it is heading another 2 big figures lower eventually at a minimum.

Stocks in the US were as boring as boring gets with the Dow down just 3 points to 17,084, the Nasdaq drifted 2 points lower to 4,472 while the S&P 500 gained 1 point to 1,988.

The data was interesting and you could argue that the reaction of the dollar and of interest rate markets overnight was completely confusing. But equally so the data was mixed so maybe its just noise. Jobless claims were super low at 284,000 versus 308,000 expected but the Markit PMI was 56.3 versus 57.5 expected and 57.3 last. New home sales were also lower dipping 8.1% but the Kansas City Fed manufacturing index bounce strongly to 11.

Europe loves a good nothing so with nothing bad happening in Ukraine it was a better night with stocks up across the board. The FTSE 100 in London was up 0.34% to 6,821, the DAX was 0.41% higher to 9,794 and the CAC was up 0.79% to 4,411.

Locally the impact was that SPI 200 futures are up 8 points to 5,540 and Craig James from CommSec says that BHP was 0.8% higher in London while Rio Tinto leapt 1.5% so it could be the day that the physical ASX takes out 5600.

On bond markets traders voted that on balance the employment and Richmond Fed data in the US trumped the weaker prints with 10 year Treasuries up 4 basis points to 2.51%. 10 year German Bunds were up 3 points to 1.18% while Gilts rose 5 points to 2.61% even though retail sales undershot printing 0.1% in June against the 0.3% rise expected.

In Asia yesterday Shanghai shares were on a tear and it feels like technically they are breaking out. The catalyst of course was the solid print of 52 for the July flash PMI. Shares in Hong Kong were also higher with the Hang Seng rose 0.71%. In Japan though stocks fell 0.29% to 15,284.

On currency markets the US dollar swept all before it. Euro finished at 1.3463, Sterling 1.6985 and USDJPY lifted to 101.81. The Aussie is back at 0.9413 which is a confirmation that the range top remains the range top for the moment. The rally after the Chinese data evaporated and the battler is a little lower. Not weak but lower nonetheless as traders eye the RBNZ’s warning of intervention and the possible strategy the RBA might take.

Darvasian Box

On commodities iron ore dipped a little with September 62% Fe swap futures off 20 cents to $92.88 tonne. Newcastle September coal was unchanged at $68.40.

Nymex August crude is down $1.05 to $102 Bbl, gold is back below $1,300 at $1,293 after testing the 200 day moving average last night. Silver slipped back to to $20.48 while copper climbed a massive 6 cents lb to $3.25. The Ags were reletively quiet with corn down 0.28%, wheat dipped 0.38% while soybeans rose 0.54%.

Data wise today sees Japanese CPI which will be huge for the Nikkei and Yen and then in Germany tonight we see the release of the Gfk consumer confidence and IFO business surveys. UK GDP is going to be huge for BoE expectations, Gilts and Sterling. Durable goods in the US is out along with pending home sales and Dallas Fed manufacturing index.

Greg McKenna

NB: Please note all references to rates above are approximate

To learn more about Greg McKenna, read on here.