A very positive weekly US jobless claims number (or was it?) sees risk off and the USD rallying as it frustrates this QE-seeking market. The USD rally is very much back on track.
EURUSD dropped to fresh lows today for the cycle, but the headlines were stolen by the Aussie, which went from outrageous strength in recent days across the board to extreme weakness on an extremely bad employment data print for June and then on the reaction to the US claims data (more on that below). See more in my piece on the Aussie from this morning.
US Weekly Jobless Claims
Weekly US claims were out at a very low 350k – which looks like a very promising sign for the job market, but we must note that these few weeks around end of June and early July are normally associated with a seasonal surge in claims that has not materialized to the degree that it normally does this time of year. For perspective on how large the adjustments are, consider that the unadjusted claims were 440k this last week vs. 370k the previous week and yet the adjusted reading comes out 26k lower instead. Were this news taking place during the late fall and winter period, I would be more willing to take it as good news, but for now, I would prefer to chalk to put an asterisk by the number and wait for another few weeks of data.
Chinese reserves data
Chinese currency reserves dropped heavily in the month of June – suggesting that those hot money inflows of yore have become hot money outflows. I’ve mentioned a couple of times recently that I suspected some of the Aussie’s resilience, for example, may be due to wealthy Chinese taking some of their capital out of the country. Regardless, this certainly buttresses the EURUSD downside argument, as accumulation of FX reserves is associated with EURUSD buying on reserve diversification.
Looking ahead
The reaction to the weekly US jobless claims said a great deal about how this market is positioned these days. The number should theoretically be considered a positive sign for the US economy – but this market doesn’t believe in growth or the economy anymore – it is more like a spoiled, two-year old child that is looking for constant indulgence from the world’s central banks, and any obstruction (like a positive weekly claims print like the one we saw today, for example) to the prospect of immediate and large injections of QE gravy mean it will throw a tantrum like the one we are seeing today. It will be interesting to see if today’s tantrum continues for a while longer. Something tells me this sell-off is of a different quality than the vicious one-day sell-offs that came on ad-hoc EU-related news over the last several weeks that failed to lead to a larger directional move.
Look out for the data from China out overnight, for what it is worth (a little bit + a large grain of salt). Not much to finish off the week with tomorrow besides the US PPI and the preliminary US University of Michigan confidence data.
Stay careful out there.
Economic Data Highlights
China Jun. Foreign Exchange Reserves out at $3.24 trillion vs. $3.36 trillion expected and $3.31 trillion in May
Euro Zone May Industrial Production rose a seasonally adjusted +0.6% MoM vs. 0.0% expected and vs. -1.1% in Apr.
Canada May New Housing Price rose +0.3% MoM and +2.4% YoY vs. +0.2%/+2.3% expected, respectively and vs. +2.5% YoY in Apr.
US Jun. Import Price Index fell -2.7% MoM and -2.6% YoY vs. -1.8%/-1.5% expected, respectively and vs. -0.5% YoY in May
US Weekly Initial Jobless Claims out at 350k vs. 372k expected and 376k last week
US Weekly Continuing Claims out at 3304k vs. 3300k expected and 3318k las week
US Weekly Bloomberg Consumer Comfort Survey out unchanged at -37.5
Upcoming Economic Calendar Highlights (all times GMT)
US Fed’s Williams to Speak (1940)
China Jun. Industrial Production (0200)
China Q2 GDP (0200)
China Jun. Retail Sales (0200)
John J Hardy,
SAXO BANK