Days like yesterday do not come about too often, a couple of times a year perhaps and in that vein yesterday was the worst day in equities since early February. In the US the DOW and S&P were both down over 3% while the tech heavy NASDAQ was down over 4%. It was a similar picture across Europe as Italian concerns weigh heavy and overnight the Nikkei was down 3.89% also. Futures this morning were also looking pretty grim pointing to a much lower open but things have recovered somewhat with Europe up off its low open and US futures now slightly up on the day.
Part of the concern was based on the rising interest rate environment, President Trump has clearly voiced his displeasure with the Feds path to higher rates and this no doubt played its roll in yesterday’s Fed selloff. There will be plenty that argue the selloff was needed, simply a correction in the never ending bull market, and we’ll be watching closely to see how the week closes out. Looks like the (10 year) bull run will be thanks to Trump but the selloff will be the Feds fault. Let’s not forget about tariffs and trade wars, we are seeing some early evidence of this beginning to bite, not just in the US but globally. The IMF revised forecasts lower on Monday but they were simply falling in line with most other analysts who raised concerns two months ago.
With the focus on the Fed and greenback it was not surprising to see USD selling. Almost every time Trump makes these comments on the USD it faces some selling and yesterday was no different. Needless to say the dollar’s decline against the safe haven JPY was the most notable. USDJPY now down over 2% from last week’s highs. The dollar also faces selling across the board however, from EUR and GBP yesterday and even AUD and NZD thus far today. EURUSD managed to rally back above 1.1500, while yesterday GBPUSD was capped at 1.3200 area. There were a couple of Fed speakers across the wires yesterday evening and most notable was Evans who pointed out how unusual it was a for a US President to continue to comment on monetary policy, especially negatively. CPI data headlines the US calendar later, while not the Feds favoured measure of inflation it could still see some further USD selling should inflation drop below the 2.4% guided.
UK data was pretty grim yesterday. Trade balance data was worse than expected, as was August GDP at 0%, construction output was weaker and the index of services also at 0%. The one upside was better than expected industrial production data. The BOE’s Haldane was also speaking and raised concerns on the low levels of productivity, stating there was little the BOE could do about that. The UK economy is approaching a very dangerous point and this all before we experience any real Brexit disruption. Brexit headlines has tended to be positive since the weekend but one flash across the newswires yesterday evening highlighted the UK Government still see “significant obstacles to overcome”. We’ll be headline watching on this front today.
EURUSD high this morning was 1.1572 so that marks some light resistance higher but 1.1628 provides a larger back stop should USD selling accelerate. Below that we’ll just be looking for a move back towards 1.1500.
EURGBP saw support at .8722, again that region has been prime for a EURGBP bounce higher we are back up to .8750 are currently and resistance comes in around .8780 with .8800 the primary target to a move back.
GBPUSD is now sub 1.3200, 1.3180 provides some light support and below there 1.3130 looks likely to be the next stop on a move lower.