Overview of the price action in the fx market.
It may seem counter-intuitive but the US dollar appreciated last week, despite the partial closure of the Federal government, the heightened risk of default and the nomination of Yellen. The dollar can move higher next week too.
Markets are so obsessed by developments with the US debt ceiling, that absolutely nobody noticed that the Japanese Current Account (JPY152Bn, Exp. JPY520bn), Industrial Outuput in Spain (-2.0%, Exp. -1.6%), Factory Orders in Germany (-0.3%, Exp. +1.2%), Trade Balance in Germany (€13.1bn, Exp. €15.0 bn) and that the Jan-Aug tax revenue in Greece below expectations by 5.7%, all missed horribly, and that for all the talk of a European recovery (which was merely driven by a brief surge in Chinese credit spending making its way into the European pipeline) is once again fully and entirely premature. But with Congress on everyone's mind, even increasingly China and Japan, who cares about fundamentals: after all there is a Federal Reserve to mask the fact that nothing but liquidity injections matters. Even if that means a complete collapse in the actual economy as those separated from the Fed by one or more layers of banks, crash and burn.
Technically, the dollar is looking a bit better. Here is our assessment.
A US government shutdown, slumping vehicle sales, Aussie trade deficit double what was expected (and building approvals tumbled), Asian growth expectations being cut, and Japan's monetray base is up 46.1% YoY (versus 42.0% exp.)... Japanese stocks are down over 400 points from the US day session highs, falling for the 4th day in a row (down 4.8% from the highs last week) as the third arrow confusion reigns taking the Nikkei 225 back to 3 week lows. The Rupiah (Indonesia) and Baht (Thailand) are weakening (bucking the 3-day weakness in the USD) and Indonesian (+10bps), Aussie, and Kiwi bonds are leaking higher in yield. In general, AsiaPac equities are holding modest gains but Singapore and Japan are taking it on the chin... S&P futures -5 from day-session highs.
Dispassionate overview of the key factors shaping the investment climate in the week ahead.
Overview of near-term dollar outlook.
The primary trend of the AUD is down. Bernanke has provided us the opportunity to sell the rally and profit from a primary trend continuation.
The Fed is among the only major central banks not meeting next week, yet it is overshadowing the others. The dollar's tone improved markedly in recent days. There is still scope for the Fed to disappoint the dollar bulls.
Quick, dispassionate overview of the fx market.
As Australia's Leading economic index data hit, printing 0.0% for its lowest level in 13 months, AUDJPY fell out of bed with a thump and snapped carry-trades that were holding Asian stocks near unch early on. The Nikkei 225 fell over 250 points from its post-US close highs. The Aussie data combined with news that Fukushima was being raised to a Level 3 'incident' is escalating the JPY move (and dragging Nikkei -11.5% from its 7/18 dead-cat-bounce highs). Asian FX is fading once again (though KRW and TWD are modestly bid) led by IDR and THB. Indonesian stocks are also suffering as the currency has devalued almost 7% in the last 4 days and dropped by its most since Lehman tonight. Chinese stocks are siding fast led by Everbright which has now fallen 17% since it re-opened for trading yesterday. S&P futures are -3 from the US close (down over 9 points from the intraday highs) and Treasury futures have rallied back to unch from a modest dip earlier in the Asian session.
UPDATE: Everbright Securities (the Chinese fat-finger stock brokerage) just announced they SNAFU'd again - this time by 'mistakenly' selling 10Y government bonds at 4.2%
AsiaPac and EM markets are awash with red this evening. While Japanese stocks are very modestly higher on the bad-news-is-good-news that Abe's economy saw the third largest trade deficit on record (dramatically worse at over JPY1tn than expectations of JPY773), most of the rest of the overnight markets (including US Treasuries) are in the red. From plunging Aussie vehicle sales data (-3.5% from +4.0% in the prior month, to a -0.3% QoQ print for Thailand's GDP (confirming recession as opposed to expectations of a +0.2% gain); and from Indonesian current account deficit (and currency depreciation) concerns smashing stocks -4.0% (most since Oct 2011) to the ongoing collapse in India currency, bond, and now equity markets, all is not well ahead of the European open. Chinese stocks are also down for the fourth day in a row as Friday's fat-finger concerns drive brokers down hard and spike 7-day repo rates.
Anticipation of Fed tapering is being cited for both dollar gains and dollar losses. What gives?
Short-term, dollar risks still appear on the downside, but this appears largely corrective in nature. Medium-term, a higher dollar still appears to be the most likely scenario.
It seems I arrived in New Zealand just in time to see the country implode over a bit of botulism and bad PR. Good thing I haven't converted all my dollars into kiwis just yet!