New highs in the USD saw profit taking/consolidation ahead of tomorrow’s US employment report. But bond market yields plunged lower still after ugly US data, dragging the USD and especially JPY back to the strong side.
The new lows in EUR/USD overnight were partially retraced today, as Spanish bond yields erased most of yesterday’s spike higher and the news flow failed to add to already very high levels of EU concern. Still, bond markets continue to show extreme caution, as the German bund poked to new all time highs/lows in yield below 1.25% as of this writing and US treasuries also snapped back higher from an intraday sell-off and rallied further after poor US data. This took USD/JPY to a new low since the BoJ’s pivotal February 14 meeting in which. We can expect to hear from the interventionists very soon if US/DJPY stays down here and especially if it heads below 78.00 again.
Petro-Currencies
It’s worth noting that some of the EM currencies most associated with significant reliance on oil exports are particularly, weak, like the Russian ruble and the Mexican peso. These two currencies have lost significant ground in recent days, with the ruble seeing an oddly delayed reaction to the significant declines in oil prices of late, while the peso has merely crumbled from already sharply weaker levels. USD/MXN is poised close to the 2011 highs. Shield your eyes if crude oil reaches 60 dollars a barrel again.
Speaking of oil prices, CAD has been surprisingly lackadaisical in its reaction to the spiral lower in crude prices, with USD/CAD still near the top of the range, but hardly showing any signs of panic. The NOK as well is surprisingly immune to the drop in oil prices. With NOK, I suspect traders are distracted by the weak EU theme and NOK is acting as a kind of safe haven, though we must remember that NOK is fairly thinly traded and has a long history of correlation with crude oil prices. A note of caution for NOK longs, in other words, though it may still outperform many of the other commodity currencies. Of course, USD/NOK does suggest that it is somewhat of a crude oil proxy. USD/CAD has a long-proven record of negative correlation with energy prices, and the lack of concern there is more surprising (though just after I have written this, we are seeing the pair push above the 1.0300 level again on the weak Chicago PMI).
US Data
The US data today was mostly poor and not at all supportive of risk appetite, as weekly jobless claims came in at their weakest level in 5 weeks and the Chicago PMI saw a very negative surprise with a drop below 53 after a 56+ showing last month. The regional manufacturing surveys for the month were not consistent, so the ISM survey tomorrow is a bit of an unknown, though last month’s figure was a surprising nine-month high, and I suspect after a very weak Philly Fed and now Chicago PMI, that we are more likely to miss below expectations. As well, the ADP missed by a bit and the Challenger job cuts survey jumped alarmingly in April and shows that companies have laid off 20% more workers than they did a year ago.
Looking Ahead
With today’s weak US data, the market is probably leaning toward a negative surprise for tomorrow’s US employment report, but the situation in the EU remains the dominant focus with the unbearable wait to the Greek elections on June 17. With bond yield declines in Germany having now moved into a parabolic decline, the time window until some kind of climax resolution to the market tensions is rapidly shortening. Still, the amazing thing to me is how long equities have tried to hold out – as we are still trading above recent lows in the US and elsewhere. So we’re not quite at the “sheer panic” stage just yet, but the conditions are ripe for some kind of dramatic climax resolution, so stay careful out there as always.
Look out for the Asian kick-off of world manufacturing survey day tonight.
Economic Data Highlights
- Australia Apr. Building Approvals fell -8.7% MoM and -24.1% YoY vs. +0.3/-13.8% expected, respectively and vs. -15.8% YoY in Mar.
- Switzerland Q1 GDP rose +0.7% QoQ and +2.0% YoY vs. 0.0%/+0.7% expected, respectively and vs. +2.0% YoY in Q4
- UK May Nationwide House Prices rose +0.3% MoM and fell -0.7% YoY vs. +0.1%/-1.1% expected, respectively and vs. -0.9% YoY in Apr.
- Germany May Unemployment Change at 0k vs. -7k expected and +18k in Apr.
- Germany May Unemployment Rate out at 6.7% vs. 6.8% expected and 6.8% in Apr.
- Norway Apr. Retail Sales out at -0.1% MoM and -3.7% YoY
- Norway May Unemployment Rate out at 2.3% vs. 2.4% expected and 2.6% in Apr.
- Eurozone May CPI Estimate out at 2.4% YoY vs. 2.5% expected and 2.6% in Apr.
- US May Challenger Job Cuts rose 66.7% YoY vs. +11.2% in Apr.
- US May NAPM Milwaukee out at 57.7 vs. 53.4 expected and 52.9 in Apr.
- US May ADP Employment Change out at 133k vs. 150k expected and 113k in Apr.
- US Weekly Initial Jobless Claims out at 383k vs. 370k expected and 373k last week
- US Weekly Continuing Claims out at 3242k vs. 3250k expected and 3278k last week
- US May Chicago PMI out at 52.7 vs. 56.8 expected and 56.2 in Apr.
- US Weekly Bloomberg Consumer Comfort Index out at -39.3 vs. -42 last week
- US Weekly DoE Crude Oil and Product Inventories (1500)
- New Zealand Q1 Terms of Trade (2245)
- Australia May AiG Performance of Manufacturing Index (2330)
- Australia Apr. RPData-Rismark House Prices (0000)
- China May Manufacturing PMI (0100)
- China May HSBC Manufacturing PMI (0230)