Risk aversion was the name of the game yesterday as markets digested the impact of the latest Trump revelations. It’s been a bad week for the American President and for the very first time since his inauguration markets showed some real concern.
Stocks dropped over 1.5% in the US yesterday with the S&P down 1.8% facing its largest drop since December 2016, while the USD was also under downside pressure with the benchmark index for the greenback down over .7% on the day and 2.3% from last Friday’s swing high. USDJPY, the benchmark for risk was down over 1.8% while another safe haven rally in the Euro saw EURUSD press above 1.1100 as hopes also mount the ECB will begin to scale back QE and start the process of normalisation of policy.
GBP was under some pressure as well following weaker than expected wage growth, EURGBP rallied up to .8611 on the weaker pound but GBPUSD is still pressing towards 1.3000, however thus far every single rally stalls ahead of 1.2990, should we see a break above 1.3000 we may well see acceleration higher towards 1.3200 area. Risk aversion steadied somewhat overnight but the Nikkei was still some 1.3% lower but did rally off its lows later in the session.
In the UK negative real wage growth has become a reality again. Yesterday’s labour market figures pointed to a healthy jobs market with unemployment at 4.6% but salaries only grew at a rate of 2.1% vs inflation of 2.7%.
More people working for less with higher costs is the basic analysis there so while headline figures may be attractive there are some concerns. The high street however should provide us a good indication of how people on the street are feeling and retails sales are due this morning and figures just released saw sales rise 2.3% vs 1.1%, with the year on year figure rising to 4%.
GBPUSD broke above 1.3000 on the news and we’ see some stop losses lines up above there which may push the pair just a little higher than expected. In EURGBP, the pound has recovered from .8600 levels and now trading back towards .8550, with support lower towards .8530 area.