Forex headlines for July 31, 2014:
- July 2014 US ISM Chicago business PMI 52.6 vs 63.0 exp
- US initial jobless claims 302k vs 301k exp
- May 2014 Canadian GDP 0.4% vs 0.3% exp m/m
- Q2 2014 US employment costs 0.7% vs 0.5% exp
- July 2014 US Challenger job layoffs 46,887 vs 31,434 prior
- IMF sees Japanese inflation at 2.0% by 2017
- Reuters poll has world’s leading investors raising equity holdings in July to the highest since March 2012
- Vulture funds looking to sell Argentine bonds to foreign banks
- NZD/USD shorts were the best trade this month
- Gold down $11 to $1284
- WTI crude down $2.36 to $97.91
- US 10-year yields flat at 2.56% after touching 2.61%
- S&P 500 down 39 points to 1930
- NZD leads, AUD lags
You’d think it was the Chicago PMI that kicked off the rout in stocks but it was well-underway before the data. The bond market signaled some worries about a hawkish Fed in the early going and stocks began to kick and scream. Of course the problems in Argentina and Banco Espirito Santo also weighed.
Lots of people (me included) also look at the calendar as a culprit. The indexes that struggled most were the ones that have underperformed this month, suggesting that some month-end window dressing from fund managers could have been a factor.
There were the usual non-farm payrolls rumors but nothing believable. That will be the main story in the day ahead. The problem for stocks is that a good number brings hikes closer while a bad number signals a poor economy.
What was remarkable today was the lack of volatility in the currency market. The euro was in a narrow range from 1.3570-1.3600 in US trading and hardly reacted to the headlines. Even more remarkable was the inability of the yen to rally on risk aversion. Instead it chopped around 102.85.
The commodity bloc was mostly higher, led by the Canadian dollar after a decent GDP report. Even as stocks were falling to fresh lows late in the day the New Zealand dollar bounced.
The FX market can ignore stocks for a day or two but it’s impossible for the divergence to continue. If the worries continue in stocks tomorrow, then it will get much more interesting.
