Will Mario Be Super?

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Market Drivers October 20, 2016
AU Labor data misses
UK Retail Sales miss
Nikkei 1.39% Dax 0.22%
Oil $51/bbl
Gold $1269/oz.

Europe and Asia:
AUD Employment -9.8K vs. 15K
EUR GE PPI -0.2% vs. 0.2%
GBP 0.0% vs. 0.4%

North America:
ECB Rate Decision 7:45
ECB Presser 8:30
USD Weekly Jobless 8:30
USD Philly Fed 8:30

Weaker data from both Australia and UK clipped those two currencies in Asian and early London trade tonight in what was otherwise a very quiet session as traders awaited the ECB monthly press conference later in the day.

In Australia the labor data proved to be a big disappointment with the country losing -9.8K jobs versus forecasts of 15K gain while the participation rate declined to 64.5% versus 64.8%. Worse the full employment figures dropped by a whopping -53K as the economy shed jobs at a much faster pace than anticipated.

The Australian labor data has been markedly more volatile ever since the Australian Bureau of Statistics readjusted its methodology last year and some analysts doubted the large swing in full time employment, but regardless of the data the overall report was not positive for the labor markets and suggests that some sort of slowdown in Australian is clearly occurring. Whether this surprising decline in employment growth will be enough to nudge the RBA off its neutral stance remains to be seen. Most analysts believe that the central bank will ignore the data unless there emerges a pattern of at least three months of sub-par growth.

The Aussie tumbled in the aftermath of the release but found support near the 7650 level for now. Still the pair is now going to have a hard time breaking above the massive resistance at .7750 figure as doubts about RBA policy will begin to creep into the market.

In UK the Retail Sales data was weak printing at 0.0% versus 0.4% eyed.The ONS pointed out that sales were hit by good weather which delayed the purchases of autumn clothing. But the true reason of the decline is likely the dampened sentiment post Brexit vote as well the decline in sterling which may be starting to impact consumer spending habits. In either case, cable drifted back to 1.2250 in London dealing before rebounding slightly.

The focus today will be on ECB and most importantly Mario Draghi’s comments about a possible QE taper. As many analysts have pointed out inflation in the EZ remains muted and growth is still tepid. With only 5 months left on the initial plan of 18 months of QE, Mr. Draghi will have to address the matter soon. However, if he chooses to ignore the issue for now, the market may take that as implicit confirmation of recent stories that QE will begin to be wound down and that could produce a very sharp rally in EUR/USD that could take the pair though the 1.1100 figure before the day is done.

Boris Schlossberg
Managing Director

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