Market Drivers Feb. 26, 2016

Comm Dollar complex continues to rally
Euro hobbled by weak CPI
Nikkei 0.30% Dax 2.39%
Oil $33/bbl
Gold $1233/oz

Europe and Asia:
JPY BOJ Core CPI 1.1% vs. 1.2%
EUR FR CPI 0.2% vs. 0.4%

North America:
USD GDP 08:30
USD PCE 08:30
USD Personal Spending/Income 08:30

The commodity dollars were the leaders of the night in a generally sedate session in FX marked by mainly range bound moves and very little newsflow. With oil remaining firmly bid above the $33/bbl mark equities saw end of the week risk on inflows that pushed the DAX more than 2% higher by mid morning trade.

The positive sentiment extended the rally in commdollars with kiwi inching towards the .6800 levels while USD/CAD came within a few pips of testing the very key 1.3500 figure. New Zealand also benefited from a favorable Trade Balance reading which came in at 8M vs. -250M eyed bolstering the view that the kiwi economy continues to weather the slowdown in Asia better than its neighbors.

After months and months of battering the commodity complex is enjoying a strong counter trend rally driven in no small part by the recovery in oil prices. The general market mood has turned as well, as investors appear to be less concerned with the prospect of a global contraction. At today’s G-20 summit in Shanghai policymakers went out of their way to reassure the markets that they possess enough tools to respond the current slowdown in demand.

Ultimately however, the data will decide if growth has stabilized and to that end today’s slew of economic reports from US could help solidify the recent risk on move if the news proves better than expected. The markets are looking at softer GDP read of 0.4% from 0.7% the period prior but for slightly hotter inflation readings and a pop in Personal Income/Spending to 0.3% and 0.4% from 0.0% and 0.3% respectively. The spending figures may be key as investors look from some evidence that the transmission mechanism from jobs to wages to spending is beginning to work.

If the numbers to print better than forecast the greenback could strengthen across the board as investors rethink their dour expectations for growth this year. It is still very unlikely that anything in the data could move the Fed off its neutral stance for now but a pick in US consumption would go a long way to alleviating the current fears of a global slowdown. If fixed income begins to reprice its assumptions by pushing UST 10 year rate back towards 2.00% the greenback rally could really gain momentum over the next few weeks.

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