DJIA index reaches new record and rises the most in five weeks, sterling falls to six day low on poor wage data
The three leading USA indices; NASDAQ, SPX and DJIA, all closed at or near to record highs, with some also reaching intraday record highs on Wednesday. The across the board rise wasn’t bolstered by economic calendar data, as the latest house building figures came in way below forecast. Building permits fell by -4.5% MoM in September, whilst starts slumped to -4.7% in the same month. Investors in stocks appeared unconcerned, perhaps dismissing the data as a seasonal blip, however, dollar investors were unimpressed, selling off the dollar as the data was published. The rise in equities owes more to the momentum being built on the basis that the Fed appears convinced the USA economy is strong enough to weather quantitative tightening and a series of rate rises beginning in December. The belief still lingers that Trump will force through his tax cuts agenda, one of the principal reasons the DJIA has risen by circa 25% since his election.
The U.S. dollar experienced mixed fortunes in the two key trading sessions on Wednesday; making significant gains versus yen, maintaining gains versus the kiwi, but falling versus, euro and the Canadian dollar, whilst ending the day close on flat versus sterling. The dollar index fell by approx. 0.2% on the day.
FX traders need to closely monitor their sterling positions over the coming days, weeks and months as the U.K. pound will be highly sensitive towards even slightly negative data, only just missing forecasts, given the ongoing Brexit situation. The pound initially suffered a slip as the latest employment/unemployment data was published on Wednesday, as despite the unemployment rate staying at a record low, wage growth remained subdued at 2.1% annualised and with wages in real terms (adjusted for inflation) being at the same value as 2005, U.K. consumers appear to be struggling, given that CPI (inflation) hit 3% YoY when announced yesterday. The currency did recover versus several leading peers, ending the day down moderately versus the U.S. dollar and losing circa 0.2% versus the euro and up versus the Swiss franc, which continued its lack of safe haven appeal witnessed over recent days.
The euro rose versus the majority of its peers during Wednesday’s sessions, investors appeared to be impressed by Mario Draghi’s speech in Frankfurt, in which he intimated that the ECB bond purchase scheme is likely to be tapered soon, however, the ECB will still remain vigilant and accommodative, if inflation fails to rise in line with predictions. Investors appeared to be unaffected by the latest Eurozone construction metrics missing the forecasts.
USD/JPY breached R3, ending the day up circa 1% at 112.93. USD/CHF finished the day up circa 0.4% at 0.9810, resting just above R1, having rejected R2, the intraday high. The dollar fell versus a principal commodity currency; the Canadian dollar, as WTI oil rose on the day. USD/CAD fell by approx. 0.4%, to breach S1 at 1.2463.
EUR/USD experienced whipsawing during the trading sessions; initially falling through S1 in the morning European session, the currency pair then rallied in the New York session, breaching R1 to end the day up circa 0.3% at 1.1790. EUR/GBP finished the day up circa 0.2% at 0.8932. EUR/CHF rose by up to 1% on the day, breaching R3, closing out at 1.1568. Versus the Aussie dollar the euro rose by circa 0.3% and versus the NZD the euro rose by approx. 0.6%. Yen endured a sell off versus its major peers on Wednesday, EUR/JPY was no exception; closing the day out up over 1% at 113.43, breaching R3.
GBP/USD initially fell in the morning session by circa 0.3% reaching S1, the currency pair, often referred to as “cable”, recovered to end the day down circa 0.1% at 1.3203. Similar to many leading currencies, the U.K. pound rose versus two of its main peers; the Swiss franc and Japanese yen. GBP/CAD fell by circa 0.2%, GBP/AUD fell by circa 0.1% and GBP/NZD rose by approx. 0.2% on the day.
EQUITIES AND COMMODITIES SNAPSHOT OCTOBER 18th
• DJIA closed up 0.70%.
• SPX closed up 0.07%.
• NASDAQ closed up 0.01%.
• FTSE 100 closed 0.36%.
• DAX closed up 0.37%.
• CAC closed up 0.42%.
• WTI oil rose by approx 0.2% to $52.18 per barrel.
• Gold fell by circa 0.4% to $1281 per ounce.
KEY ECONOMIC CALENDAR EVENTS FOR OCTOBER 19th
• GBP Retail Sales (YoY) (SEP).
• USD Initial Jobless Claims (OCT 14).
• USD Continuing Claims (OCT 07).
• USD Leading Indicators (SEP).