Equities waffled in the red for the majority of yesterday’s session, but managed a late-day push higher to propel the S&P to close green on the day. Investors were undisturbed by further developments in eastern Europe, even with the G-7 calling on Russia to halt support of the upcoming referendum in Crimea, saying they will not recognize the result and it would violate UN charter. Oil was under notable pressure throughout the North American session, although things really went sour for WTI when Reuters reported the US was set to release crude oil from its strategic reserves.
The SPR release was reported to be only 5M barrels (about a third of US daily consumption) and done as a test sale to check “operational capabilitiesâ€, yet the headlines sent the front-month WTI contract below $98/barrel, before managing to find some buying interest to finish the day right around that level. Copper leveled out after finding a bottom early in the morning, managing to creep back into the high $2.90s which helped prop stocks and stem some of the Loonie’s bleeding. USDCAD had an early morning pop but slithered sideways over the course of the afternoon, while the EUR was the big winner on the day as repatriation flows and comments from Germany’s finance minister boosted EURUSD for a test of the 1.3900 level. Despite the sanguine feeling in equities and the VIX yesterday, gold closed a six month high and US treasury yields were pushed lower, showing demand was still prevalent in asset classes usually tagged as “safe-havensâ€, warning that some participants are slightly more nervous than one could tell from looking at equity price action.
The overnight session was a busy one in terms of economic data, with the Australian economy kicking things off by smashing employment estimates for the month of February, showing 47k new jobs were created during the month, far higher than the 18k that had been expected.  The reading on full-time employment was even more promising coming in with the third largest print in reporting history at 80.5k, while the unemployment rate remained stable at 6.0%. While one month clearly doesn’t satisfy the characteristics of a trend, and the Australian economy will still have to deal with adjusting to lower levels of mining investment moving forward, the better than expected employment data drove AUDUSD higher, with the pair moving into the high-0.91s, dragging the rest of the commodity currency bloc along with it.
The macro data out of China wasn’t nearly as robust as the job picture in Australia, with a slew of indicators coming in on the soft side of analysts’ forecasts. Industrial Production, Retail Sales, and Fixed Asset Investment for the month of February all came in lower than the median analyst expectation, printing at 8.6%, 11.8%, and 17.9% respectively. Fixed Asset Investment was a 13-year low for the January and February reporting period, signalling the deleveraging reforms in China will make their growth target of 7.5% in 2014 a challenging feat, especially if business investment remains subdued. Combined with the disappointing trade data that was released recently, the dramatic slowdown to begin the new year has increased the expectation the government might soon lower the reserve ratio requirement of banks to try and boost growth, although Chinese Premier Li announced there was some flexibility around their growth target this year, but didn’t specify how much of a slowdown the government would tolerate. The Shanghai Comp managed to shake off the soft economic headlines as data around the Lunar holiday has a tendency to be somewhat skewed, posting an increase of 1.07% on the session. Commodity-linked currencies like the AUD and CAD also kept well insulated from any overnight selling pressure, with investors keen to focus on the Aussie jobs data rather than the slowdown in China.
As we get set for the North American open, Retail Sales for the US during the month of February just hit the wires, showing consumer spending increased by 0.3% on both the core and headline reading. The prints were better than economists had been estimating heading into the report, with pent up demand from the colder weather out in the eastern states starting to filter into the market and increase consumer activity. Mitigating some of the cheeriness of the report was the fact that January’s headline print was downwardly revised from -0.3% to -0.6%, however many participants had already discounted the January report as being marred in weather issues, so it won’t likely be a major driver moving forward. North American equity futures were little changed after the figures were released, still slightly positive before the opening bell. The EUR had some of its overnight gains clipped against the USD, but still remains buoyant in the mid-1.39s as its charge higher shows no signs of easing.
The Loonie is stronger against the USD this morning, but underperforming against most of its crosses as the by-product of the Loonie strength is broad-based USD weakness and the strong jobs numbers out of Australia. House prices for January in Canada increased by 0.3%, besting the median analyst estimate of a 0.1% increase over the month, and signalling housing prices remain resilient despite recent efforts to curb speculative foreign investment in the housing market. The CAD was little changed after the release, managing to hold its gains from the overnight session even after the stronger than expected retail sales print out of the US.
Looking ahead to what is on the docket to close out the week, Friday will bring the March survey of Consumer Sentiment as measured by the University of Michigan. Financial confidence among the retail consumer crowd has held up decently despite the harsh weather to begin the year, with tomorrow’s reading forecast to build on these gains and getting back to December levels around the 82.0 region. After retail sales managed to stem some of its bleeding in February, it is probable consumer sentiment has also remained robust, increasingly the likelihood tomorrow’s print comes in at or around estimates. Make sure to speak with you dealing teams prior to the release, and the best strategy for how to play tomorrow’s main data point heading into the end of the week.
further reading:
AUDNZD is testing historical monthly lows after rejection candle sell off
US jobless claims fall to 315K, OK retail sales – USD stronger
