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The weekend proved a firebreak for the fundamental momentum stirred this past Friday with NFPs. The US economy received a strong boost from the employment statistics which both Dollar and S&P 500 responded to initially. While the Greenback still technically drifted higher to start off the new week, it was with little of the enthusiasm we had seen immediately following the data. For US equities, the appetite all but vanished. Not only did the benchmark risk indexes not mark progress but volume plunged to multi-year lows.
What makes the quick downshift in sentiment so unsettling is that it wasn’t just the vote of economic confidence for the US that offered up its support. We are just coming off the most recent round of serious monetary policy support – a rate cut by the RBA but more importantly fresh stimulus and programs from the BoJ and BoE. Against that concentrated infusion of support, the market’s move looks all the more tepid. That makes the outlook for this week all the more dubious with few high-profile events that can rouse global sentiment to another run. With that in mind, the asymmetrical appeal of the USD/JPY’s bullish bearing eases materially. Once again, the specter of risk aversion offers the broadest and deepest opportunities; but that isn’t a theme to pursue until it is clear the long-term bulls are ready to throw in the towel.
In the meantime, the Pound will hear the drums of Brexit risks pick up once again with a round of UK data on tap. While not to the same scale as the BoE decision or UK 2Q GDP release; the NIESR’s GDP estimate for July, BRC retail sales figure for the same period, and June trade balance offer tangible evidence that the vote to split from the EU is either ushering economic malaise or fear of the impending threat was perhaps overblown. The Sterling is certainly discounted for economic and financial retrenchment, so different scenarios draw different potential. We look at the remarkably quiet turn of the risk backdrop to open the session and event risk ahead in today’s Trading Video.
