Market Drivers May 9, 2018
US 10Y > 3%
EZ data continues to miss
Nikkei -0.44% Dax 0.19%
Europe and Asia:
CAD Building Permits 8:30
USD PPI 8:30
A rise in US 10 year yields above the 3% mark helped drive USDJPY higher today, but both euro and cable also rallied in lively European trade marked by some investor relief flows after earlier geopolitical tensions in the week.
Although President Trump did pull out of the Iran nuclear deal, the full force of the action was blunted by the fact that other parties, including the Iranians, have vowed to stay in the deal, thus quelling some of the worries about the re-escalation of tensions. Oil did set a fresh yearly high rising to $71/bbl, but equities took the news in stride with European markets rising in the morning.
There was no news in overnight trade, so FX mainly moved on flows and given the fact that both euro and cable were grossly oversold some rebound was due with EURUSD popping back above 1.850 while cable touched 1.3550 but quickly receded.
The true move of the night however, was in the USDJPY which climbed steadily higher hitting 109.80 before pausing before the North American open. The rise in 10 year yields above the 3% was a critical boost to the rally. As some analysts have pointed out the combination of Fed’s tightening policy and the ever growing supply of US debt is sure to push rates higher as the year progresses. Yesterday’s auction for 3 year saw weakest demand since November with yields hitting an 11 year high.
Today the focus in North America will be on PPI data which is expected to print at 0,2% with year over year numbers staying well above the 2% level. Given the sharp rise in the prices component of ISM reports, chances are good that PPI could beat to the upside, confirming the Fed’s thesis that inflation pressures are building up in the US economy which could push USDJPY through the 110.00 figure by end of the day.