Encouraging hard economic calendar data emanating from the USA on Thursday, which also beat the consensus forecasts, helped to propel certain U.S. equity indices to record heights. Initial jobless claims came in at 260k for the week ending September 30th, with continuous claims also reducing, the trade balance deficit for August came in improved on July, at -$42.4b, and factory orders showed 1.2% growth in August, while durable goods orders showed 2% growth in the same month. All these welcome statistics created a sense of optimism on Wall Street, as investors pushed the main USA indices to new record heights, whilst the dollar rallied versus its main peers. Investor and analyst opinion appears to suggest that the USA economy is strong enough to support the monetary policy of quantitative tightening and a rise in rates, whilst the fiscal policy of reducing taxation should in theory stimulate growth and prevent the equity markets from falling, as a consequence of the imminent rate rises.
With NFP data due on Friday, investors may be encouraged that any low number, which may be caused partly as a result of the impact of the hurricanes and tropical storms that recently hit the USA, will be a temporary issue and not related to any fundamental, structural weakness, contained in the USA economy.
European equities also rallied (with only the DAX failing to rise), as did the euro versus many of its main peers, with the prominent exception of the U.S. dollar. The concern investors had, relating to the Catalonia referendum issue, appears to have disappeared, as evidenced by the main Spanish equity market the IBEX, rallying by 2.51% on the day. The euro rallied versus many of its main peers, not necessarily due to positive Eurozone economic calendar data, but more due to weakness in other currencies, caused by political issues, or poor data. The minutes of the recent ECB rate meeting released on Thursday, suggested a more dovish tone, placing doubts on the ECB’s commitment to begin tapering the asset purchase program, or raising interest rates in 2018.
Swiss CPI YoY came in at 0.8%, rising from 0.6%, Germany’s construction PMI fell to 53.4, whilst Germany’s retail PMI fell to 52.8, which may have contributed to the DAX not rising, but ending the day close to flat. The Eurozone retail PMI rose to 52.3 from 50.8. The only significant U.K. calendar news came in the form of new car registrations, which have fallen by -9.3% YoY to September, deteriorating from -6.4% in August. On the basis that August is traditionally the month when most new car registrations take place, this news spooked sterling investors, causing the U.K. pound to fall by up to 1% versus the dollar and by approx. 0.7% versus the euro on the day.
U.S. DOLLAR
The dollar index rose by circa 0.6% on Thursday to its highest level in eleven weeks. EUR/USD fell by approx. 0.8%, breaching S3, to 1.1704. GBP/USD fell by 1% on the day, breaching S3 to end the day at approx. 1.3113, USD/JPY initially fell through S1 mid-morning in the European session, to end the day up circa 0.3%, at 112.84. AUD/USD closed the day down to S3, at 0.7749.
EURO
EUR/GBP rose by circa 0.9% on the day, pushing through R3, to close the day out at 0.8926. EUR/JPY slipped by circa 0.6% and through S1 to 132.12. EUR/CHF initially rose in the European morning session to end the day close to flat, resting on the daily pivot point at 1.1456.
STERLING
The U.K. pound fell sharply as the latest poor car sales figures spooked investors. The inference of the poor data delivered this week on the British economy, is that the U.K. BoE will no longer have the will or reason to raise rates in 2017, as the U.K. economy is not strong enough to support any base rate rise. The pound fell versus all of its peers; GBP/CHF fell by approx. 0.6% through to S2 at 1.2831. GBP/JPY fell by circa 1%, through S3 to the 148.0 handle.
EQUITIES AND COMMODITIES SNAPSHOT OCT 5th.
• DJIA closed up 0.50%.
• SPX closed up 0.56%.
• FTSE 100 closed up 0.54%.
• DAX closed down -0.02%.
• CAC closed up 0.30%.
• WTI oil closed up 1.4% at 50.70.
• Gold closed down 0.5% at 1268.
KEY ECONOMIC CALENDAR EVENTS FOR OCTOBER 6th
• EUR German Factory Orders n.s.a. (YoY) (AUG).
• GBP Unit Labor Costs (YoY) (2Q).
• CAD Unemployment Rate (SEP).
• USD Change in Non-farm Payrolls (SEP).
• USD Unemployment Rate (SEP).
• USD Average Hourly Earnings (YoY) (SEP).
