Wall St clawed back its losses late in the session with the NASDAQ closing flat on the day while S&P 500 finished -.4%. This takes the NASDAQ’s 6 day move to -12.7%, while the S&P 500 is -10% for the same period. U.S 10-year yields fell 6bps to 2.86% while oil edged fractionally higher. Currency markets didn’t escape the volatility with some large moves across the board. EUR/JPY fell 3.4% off yesterday’s high while AUD/USD, NZD/USD and EURUSD all closed ~1.2%.
In Asian equities the Hang Seng was down 2.2%. The ASX fell 1.75% on Thursdays close, with tech down 8.7%, in response to the better-than-expected US CPI print. AUD/USD briefly traded at 0.6952 highs early in the session, to finish at 0.6900. Bitcoin fell as much as 6.1% to trade below $27,000. European equities fell sharply on the open with Euro Stoxx 50 down 2.6% and FTSE100 -2.1%, hitting an 8-week low. US Treasuries rallied across the curve, with the 5-year, 7-year and 10-years rates all shedding as much as 10bps. WTI crude fell 1.7% to $103.91 a barrel. European gas jumped 11% as Russian flows via Ukraine dropped.
The UK economy contracted in March, with GDP falling by 0.1% m/m (0.0% expected), Februarys GDP was revised down from +0.1% to 0%. Bank of England Deputy Governor Dave Ramsden sees more rate hikes ahead amid upside CPI risk.
US PPI for April printed at 0.5% MoM as expected and 11.0% YoY, higher than expectations of 10.7%. Core measures however were generally lower or as expected. Also released and weekly jobless claims data was mixed with initial claims slightly higher than expected though continuing claims were lower than expected.
Overnight EUR/USD fell below 1.0400 to see lows of 1.0389 and the lowest intraday level since January 2017. GBP/USD hit a two-year low trading at 1.2165. AUD/USD continued to edge lower trading at 0.6852 while NZD/USD traded down to new daily lows of 0.6232. USD/JPY traded sideways from 128.40 lows. USD/CAD made new daily highs of 1.3048.
Little reaction to the US data though majors generally moved off their lows in early NY trade. USD/JPY the sole exception as it fell through 128.00 to make lows of 127.975. After a brief pause, USD/JPY continued lower to trade down to lows of 127.535 with risk in general remaining heavy as Wall St opened to 1% losses. This saw further USD gains with AUD/USD dipping to lows of 0.6841 while NZD/USD fell to 0.6224 and EUR/USD fell to 1.0383. USD/CAD trading above 1.3050 on the move. AUD/USD fell to 0.6829 lows while NZD/USD dipped to 0.6219 and EUR/USD fell to lows of 1.0354 with USD/CAD up to 1.3077. At the time of writing AUD/USD had recovered to .6861.
Currency ranges over the last 24 hours
The prospect of higher global rates, China’s coronavirus concerns and the fear of an economic slow done continue to supersede the impact of the daily data releases. Nonetheless, markets believe investors will keep one eye on the key events from China today.
The PBoC’s Medium-Term Lending Facility Rate (MLF) today is the key thing to watch. Given comments from Deputy Governor Chen Yulu yesterday on making growth stabilization a “more prominent priority”, the chance of a cut in the 1y MLF rate has increased. Market analysts think the slight upside surprise in this week’s inflation would deter the PBoC as non-food inflation has continued to moderate and PPI inflation is also easing from a high base. Given intense economic pressure from the recent Tier 1 city lockdowns and the politburo call for step up economic support, the PBoC may double its efforts to make sure the credit up cycle will resume after the likely disruption in April.
The role of the RMB as an “automatic stabilizer” to the economy and the balance of payment means the PBoC may allow further RMB depreciation. However, it will likely continue to contain the speed and prevent FX stress spill over to broader financial conditions. Markets think an FX RRR cut is likely soon, although stronger signals from the PBoC, such as meaningfully lower USDCNY fixes versus expectation are required for RMB to stabilize in the 6.80-6.90 range near term.
The AUD/USD continued to chew through corporate interest on its way to a low of .6829 overnight. Demand can now be expected between .6800/.6823 which has provided multiple highs and lows as well as coinciding with the 50% retracement of the 2018-2020 sell off . Offering interest is littered between .6950 and .7000c.
• NZ – Apr Business NZ Manufacturing PMI • AU – RBA’s Bullock-Panel
• EU – ECB’s Centeno speaks
• EU – Mar Industrial Production WDA y/y
• US – May P U. of Mich. 1-10 Yr. Inflation
• US – May P U. of Mich. Sentiment
• US – Fed’s Kashkari Speaks