Markets saw a strong reversal of yesterday’s moves with a strong return of risk appetite. Equities and oil are higher. The S&P500 is currently up 0.9%. The US dollar and yields have lifted.
The US dollar first stabilised overnight, after its recent sell-off, and then started pushing higher supported by firm data and Fed speak. It is a change from the general downward direction over the past two weeks or so. The DXY US dollar index is up about 0.6% on the day and up 0.9% from yesterday’s lows.
USD/JPY has punched 0.4% higher to be up through 111 early this morning. The pair currently sits around 111.10. The USD/CHF is up 0.7%, reflecting the risk-on tones, but also on comments from SNB board member Maechler saying the CHF is ‘strongly’ overvalued and the bank ‘absolutely’ has more intervention power. USD/CHF currently sits near 0.9930. EUR/USD has fallen 0.5%, opening this morning around 1.0810.
The ‘Trump trade’ might be struggling as US fiscal plans come under question, but it is important to note reflation was already underway before last November’s US election and can continue without a large fiscal stimulus. It feels like the market is back in data watch mode. The problem is there has not been much data to watch. But what was on offer overnight all beat market expectations including the trade balance, house prices, wholesale inventories and consumer confidence.
US consumer confidence roared up to its highest level since December 2000. At 125.6 in March it blasted above expectations of 114.0. Even if consumers are a bit disappointed by the very latest political developments, there is plenty in this result to suggest that the US unemployment rate will track lower and spending higher.
Better US data helped support oil prices that were already rising on reports Libya was cutting shipments. WTI crude prices are currently up 1.3%.
AUD/USD pushed higher overnight supported by higher oil and a stabilisation in iron ore prices (up 0.5%). The pair nudged above 0.7650, before settling to around 0.7640 currently.
NZD couldn’t keep pace with the strength in either the USD or AUD, not helped by wholemilk powder futures edging 1% lower. NZD/USD is down 0.4%, opening this morning around 0.7020. NZD/USD is in sight of last week’s low just under 0.7000, with stronger support seen just under 0.6900.
NZD/AUD has pushed steadily lower through the night, currently sitting at its lows around 0.9190. The NZD underperformed despite an improvement in risk appetite, as the VIX fear index fell back below 12.
GBP has been under downward pressure all night and sits at the bottom of the leader board. GBP/USD is down 0.9% to around 1.2450. Focus will remain on the GBP as UK PM May is expected the trigger the Brexit process on Wednesday. In itself, this formal trigger is no big deal but from this point on expect some tough talking from EU leaders to begin. It’s already started with a German lawmaker overnight noting that they expect Britain to honour its EU bills, whatever they add up to be. Meanwhile, the Scottish parliament has backed calls for a second independence referendum.
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