Market Drivers February 22, 2018
GE IFO slips slightly
Nikkei -1.07% Dax -1.05%
Europe and Asia:
EUR GE IFO 105.4 vs. 107.9
GBP UK GDP
USD Weekly Jobless Claims 08:30
CAD Retail Sales 08:30
After staging a strong post FOMC minutes rally yesterday the dollar buckled and gave up some of its gains in Asian and early European trade today as yields on the benchmark US 10 year began to slip.
USDJPY was the weakest of all as risk aversion flows in both Asia and Europe trumped any benefits from higher yields. Both Nikkei and DAX were lower by -1% following the lead from US equities which sold off in last hour of yesterday’s trade. The pair failed to take out the 108.00 figure in yesterday’s run up and looks ready to retest the 107.00 support if US yields drop any further.
Meanwhile, on the economic front, the data had little impact on trade. In Germany, the IFO sentiment slipped slightly to 105.4 from 107.9 eyed. German companies are less euphoric about the economy than in the last few months but it is too early to talk about a fundamental shift, Ifo economist Klaus Wohlrabe said after a fall in the institute’s business confidence index. The higher exchange rate is likely dampening sentiment but so far shows few signs of materially impacting demand.
In the UK the 2nd reading of GDP came in slightly softer than forecast at 0.4% vs. 0.5% and 1.7% overall. ONS cited a number of very small revisions to mining, energy generation and services leading to a downward revision to data. Cable saw little reaction to the trade and remained slightly below 1.3900 in mid morning London dealing.
In North America, the only report of note is the Canadian Retail Sales which could show a decline given the sharp falloff in wholesale data. The loonie has been weakening all week long and a poor result could send the loonie through 1.2700 figure conclusively as the day proceeds.
As to the dollar, the single currency will likely trade off US yields for the rest of the day. With no data on the docket, all eyes will be focused on the US 10 year rate which is tantalizingly close to the 2.95% level. However, a break above that barrier could have wildly divergent results for the buck. The greenback is likely to gain strongly against the majors and especially the high yielders like Aussie and kiwi where the interest rate differentials continue to compress, but it may lose ground against the yen on risk aversion flows if equities begin to sell off once again in response to surging US yields.