The NY session saw the buck come under pressure as the commodity complex extended gains. The CRB commodity index gained more than 1.5% as a more than 2.5% jump in oil prices back towards the $70/bbl mark led the way higher. US equities were relatively flat, with the S&P managing to eke out a paltry 0.2% gain but closing below the 900 mark nonetheless. Economic data was scarce with only US existing home sales on the docket. The report showed a 2.4% increase to 4.77 million annual units and this was slightly below the market expectations. Inventories were a touch lower with months' supply back down to the 2009 low of 9.0 months. Foreclosures were also a smaller portion of total sales in another welcome sign. That said, the data continue to suggest merely stabilization on this front. It will still be a while before the housing sector contributes to overall growth in any material way.
The other big news was the US 2-year Treasury auction which turned out to be one of the best on the books. The bid-to-cover ratio (the number of bids submitted relative to what was on offer and a proxy for overall demand) came in at robust 3.19 and the highest in almost two years. Even better was that fully 69% of the offering went to indirect bidders (proxy for foreign appetite) and this was the highest on record! This suggests all of the talk from foreign heads of state suggesting that US assets are being pared is just that... talk. The facts on the ground suggest that US paper is still in huge demand as investors seek out a safe haven steady income stream in uncertain times. The results saw EUR/USD come under pressure after taking out stops above 1.41. The 5-year and 7-year auctions are due in the next couple of days and should they come in relatively strong, we could be poised for a USD reversal higher here.
The Fed press statement tomorrow at 215pm ET now takes precedent. That rates will remain unchanged at the 0.00% to 0.25% range is baked in the cake and thus all of the attention will once again be on the press statement. The biggest risks and the likely catalysts for some serious volatility would be an overall negative assessment on growth or that the committee will say outright how long rates are likely to remain on hold. With an equity market seemingly on knife-edge, any poor commentary with regards to the economic outlook could see risk assets retrench further – the market looks overly optimistic that the Fed will deliver a rosier outlook. If recent price action is prescient, we would expect the USD would be better bid under this scenario. Indeed the negative correlation between the buck and stocks has actually strengthened this month relative to last. If the Fed announces that they are on hold until a specific deadline well into the future (call it mid-2010), the USD could suffer as US bond yields would likely plunge, sending the currently dollar-supportive interest rate differential lower. The US currently holds a 20 basis point advantage over the Eurozone 10-year yield equivalent. We think the probability of the former event happening (the Fed offering a somber economic assessment) is the more likely of the two and thus would anticipate an overall USD-positive reaction.
Upcoming Economic Data Releases (Asia Session) prior expected
- 6/23 23:50 GMT JN Merchnds Trade Balance Total MAY ¥69.0B ¥210.0B
- 6/23 23:50 GMT JN Adjusted Merchnds Trade Bal. MAY -¥52.2B ¥203.5B
- 6/23 23:50 GMT JN Merchnds Trade Exports YoY MAY -39.1 -39.6
- 6/23 23:50 GMT JN Merchnds Trade Imports YoY MAY -35.8 -41.2
- 6/23 23:50 GMT JN Corp Service Price (YoY) MAY -2.40% -2.80%
- 6/24 1:30 GMT JN BOJ Board Member Nakamura Speaks in Niigata City
- 6/24 2:00 GMT NZ Westpac NZ Consumer Confidence 2Q 96 - -
