- Commodities fall, equities rise, bond yields fall and dollar rallies as macro investors take profits on relation trade
- ADP employment report near expectations, private sector sheds 532,000 jobs
- ISM non-manufacturing index rises to 44.0 from 43.7,modestly weaker than expected
- US factory orders rise 0.7% in April; March revised to down 1.9%
- Bernanke: Jump in US yields reflect deficit concerns; economic optimism push yields up as well, slow recovery to begin late this year. Government needs commitment to fiscal stability to obtain financial stability, growth. Fed will not monetize debt, confident will withdraw accommodation in timely manner
- Obama asks Congress to finish government health care bill by October
- Bin Laden threatens new attacks on Americans
- Bill Gross: US dollar holders should diversify
- Latvia says needs new deal with IMF, EU quickly
The dollar rallied broadly today as the reflation trade suffered its first set back in quite some time. Commodities fell sharply, equities slumped, as did bond yields and the dollar rebounded, particularly against the commodity currencies and currencies of emerging countries.
Risk aversion reappeared today as several factors converged to prompt profit-taking. Latvia’s woes put pressure on the euro as traders fear a domino-effect if Latvia defaults that could spread across emerging Europe, badly hurting highly-leveraged European banks. Bin Laden’s latest tape, which emerged as Obama landed in Riyadh also chilled market enthusiasm.
Also helping the greenback were tough words from Fed Chairman Bernanke on the US’s government’s need to restore fiscal discipline once emergency measures are no longer needed.
The highest fliers were among the worst hit today as GBP, AUD, and CAD were badly battered by the market. Macro hedge funds were heavy sellers today with profit-taking seen as the motive ahead of tomorrow’s ECB meeting and Friday’s US payrolls.
Sovereign bids saved EUR/USD from sliding off a cliff this afternoon. They held the line at 1.4110 and kept stops in the 1.4090/95 area out of reach.
US equities moderated their slide at the close, ending down 1.4% after being down 2.25% or so at the worst…
