USD proxy weakens across the board

Yesterday’s market action

Yesterday saw the earnings season get into full swing, with individual stocks leading markets given the barren wasteland that was yesterday’s calendar. The NASDAQ remained fairly stalwart yesterday as a lack of tech earnings during the session and positive M&A developments resulted in a prevention of a selloff in the index. The S&P took the majority of the dollar strength broadside with the majority of firms reporting outperformances in the EPS space but lower than expected revenues due to the stronger dollar. This is evident across the index as only 48/102 firms that have reported so far have reported better than expected revenues, dwarfed by the 82/102 beats of earnings estimates. Turning to Greece we saw the ECB propose an increase to the haircuts Greece’s lenders have to take on their loans. This is still in unofficial stages but could see progression should talks and proposals of Greek reforms regress. With the Riga meeting on the near horizon and the impending bill of €750m, made payable to Christine Lagarde, trading as the International Monetary Fund, the pressure is still present for Greece to produce a list of reforms acceptable to their creditors. Until then, the Eurocircus continues as usual: cue the music.

Today’s View

This morning saw a large scale downtick in global equities. The S&P sold off 18 points, the NASDAQ down by 40 points and European bourses significantly on the back foot. Poor Italian Retail Sales also allowed ESTOXX to make a further push below the lows but this move did not extend into other bourses to the same magnitude. This follows two Chinese defaults earlier this week which have set global equities on slightly shaky foundations. Kaisa, a property developer, defaulted on Monday on its overseas debt and Baoding Tianwei defaulted in the onshore bond market. These are the first public companies to default in the domestic market and thus this is a relatively historic occurrence, given the large amount of debt issued in China. With the GDP growth slowdown hitting the 7% mark this week, global equities are likely to remain reactive to further declines in Chinese data prints. We also saw the dollar on the back foot; this was sparked by a better than expected CPI reading from the Australians overnight, carried forward into the session as the Bank of England released unsurprisingly hawkish comments. Sterling strengthened, exaggerating the proxy dollar weakening move into the EURUSD and extending the AUDUSD move. Ahead today we have some major earnings posting ahead of the US session. Boeing, Coca-Cola, McDonald’s post ahead of the US open, with Qualcomm, eBay and Facebook posting after market. It is likely that these will once again drive price action after the open as we have no data until 1500BST; Existing Home Sales for March are expected with a headline estimate of 5.03m homes sold and a 3.10% reading. We also have DOE US Crude Oil Inventories at 1530BST. This is likely to follow API reports last night which saw a build of 5.5m bbls against the estimated 2.6m bbls. With a DOE expectation of 2.5m bbls it is likely that today’s DOE numbers will outperform. Bearing in mind that gasoline prices at the pumps are still low in the US we expect to see drawdowns in the gasoline numbers which could offset any builds we see in the headline reading. Remain reactive and follow the trends once established.