The US dollar further extended gains against other currencies, as the US Dollar Index (USDX) closed for the sixth consecutive trading day higher, spurred by higher yields on US Treasuries. Even emerging market currencies, such as the Turkish Lira (TRY) or the Russian Ruble (RUB), which until very recently showed signs of recovery, traded overwhelmingly lower against the greenback.
Equity indices tumbled across the globe, which was to a significant part attributed to rising sovereign debt yields, after the 10 Year US Treasury Note surpassed a long time resistance level below 3.2%. Early on Friday most equity future indices continued to move lower, with the VIX, which is seen as a ‘fear index’ again trading higher, after reaching the highest level since August on Thursday.
Most major cryptocurrencies had another calm trading day, with Bitcoin for the most part staying above the $6,500 level. It was reported that the cryptocurrency exchange Gemini, which is the sole price provider for Cboe XBT Bitcoin Futures, has obtained an insurance for its digital assets. Some see this as a step to gain more investor confidence, given frequent news of security breaches in the industry, which lead to significant losses.
Multiple important economic statistics across the globe are expected on Friday. Switzerland releases its Consumer Price Index (CPI) data, followed by the Halifax House Price Index from the United Kingdom and Retail Sales from Italy. Canada publishes its Trade Balance for August, where analysts expect a deficit of around a half billion Canadian dollars (CAD), followed by Unemployment Rate data.
A special focus will be on data from the US, where the monthly Nonfarm Payrolls (NFP), Unemployment Rate, Trade Balance, Average Hourly Earnings, Average Work Week and Consumer Credit statistics are due to be released.
Despite the strength of the dollar, given the rise in US Treasury Note yields to a new seven year high and strong economic data, as Jobless New Claims were down to 207 thousand (expected 213 thousand) and Factory Orders up at 2.3% m/m for August (expected +2.1%), the euro managed to recover, pushing the EUR/USD pair again up towards the 1.15 level.
Markets were reportedly relieved to see signs from Italy’s government that it would seek to overthink the proposed significant increase in spending, by reducing the deficit target after next year. This possibly helped Italy’s 10 year bond yields to hold steady around the level of 3.3-3.4%, whereas most other countries saw their bond yields rise by a sizable margin.
On Friday morning the Euro further extended its gains after German Manufacturers’ Orders were surprisingly up by 2% for August (expected +0.2%) and the Producer Price Index was up to 3.1% y/y (expected +2.9%).
Investors will put significant focus on US data such as the NFP and Average Hourly Earnings statistics. Positive data from the ADP Employment Report and ISM Non-Manufacturing Index on Wednesday was seen as one driver for higher yields in Treasury yields and the strengthening greenback.
The strong dollar and rising dollar yields, led to further declines of the Japanese yen against the dollar, as the USD/JPY rose to its highest level in 11 months. The resistance level around 114 for the currency pair however held steady, after that resistance was already tested multiple times in 2017.
Earlier the Japanese Services PMI showing the slowest growth in two years at a level of 50.2 also weighed on the yen.
Next week in Japan the current Account for August, PPI for September and the Tertiary Industry Activity Index are going to be released.
WTI Oil
Oil prices retreated from their recent nearly four year highs on Thursday. No clear event except for possible profit taking could be named to explain the move. Some analysts pointed out that worries over the loss of Iranian crude oil on the market due to US sanctions could have been exaggerated. While there are concerns by what margins other key producers, such as Saudi Arabia could boost production in case of a shortfall in Iran, Saudi Arabian energy Minister was reported saying that the country will spend around $20 bn. to boost production capacity over the coming years.
On Friday the US Baker Hughes Oil Rig Count will be released, indicating the quantity of operating oil rigs. The number of operating oil rigs stayed within the tight range of 858 and 869 since May, given the currently limited capacity of oil pipelines in oil rich regions of the US, such as the Permian Basin.
US Tech 100
US equity indices closed across the board lower, just as equity indices across the globe also declined as the sell-off in debt markets intensified. With the 10 Year US Treasury Note reaching a yield above 3.2% for the first time in seven years, markets are concerned what this would mean especially for heavily debt financed companies. High grade government bonds are seen as a benchmark in debt financing, and companies normally have to pay a risk premium on those rate to place their debt securities on the market. Higher interest rates make debt securities in theory more attractive compared to equities and due to higher interest payments can reduce profit margins of debt reliant public companies.
Especially chip makers (US Semiconductors ETF -2.14%) and biotech (US Biotech ETF -2.87%) companies had losses to their value, while bank stocks (US Banks ETF +0.25%) closed overall moderately higher.
Snapchat (-5.12%) further extended losses, closing at a new all-time low over continued criticism about its relatively recent redesign and intensifying competition from Facebook (NASDAQ:FB) (-2.33%) owned Instagram.
A relatively weak performance of so-called ‘FAANG’ shares, such as Amazon (NASDAQ:AMZN) (-2.27%), Apple (NASDAQ:AAPL) (-1.86%) and Google (NASDAQ:GOOGL) (-2.74%) and Netflix (NASDAQ:NFLX) (-3.49%) heavily impacted the performance of the NASDAQ index (US Tech 100).
Next week some of the biggest banks in the US, such as JP Morgan Chase (NYSE:JPM), Citi and Wells Fargo (NYSE:WFC) are set to release their quarterly earnings.
