Risk Off as Greece and Growth Hammer Sentiment

More disappointing US data on manufacturing and employment combined with a downgrade to Greece sparked the largest one-day decline in US stocks since August. JPY and CHF were the top performers while NZD and CAD lagged in a classic risk off pattern. Coming up, Australia will be in focus with May retail sales and trade balance.

The ADP jobs report and ISM manufacturing data missed badly and Moodys became the first agency to downgrade Greece to C-level territory. Ashraf covered todays US economic data in more detail in the prev IMT below but the market moves essentially speak for themselves. The S&P 500 closed down 2.3% to 1315, which is at the days lows and below the 100dma. US 10-year Treasury yields fell 12 basis points to 2.94% in a sign that inflation worries are evaporating.

FX moves were not as dramatic as equities because with Greece uncertainty continuing to rise, the US headed toward further fiscal or monetary stimulus, Japan in crises and China set to tighten, market participants are once again in a position where virtually nothing looks attractive. In the past, this sentiment has benefitted precious metals. Today, gold gained $2.40 while silver fell 4%.

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Australian Data Preview

The focus will be on Australia in Asia-Pacific trading. Yesterday, AUD rallied despite soft Q1 GDP but was later pulled down by the collapse in risk appetite. At 0130 GMT, the ABS releases retail sales (exp: +0.4%) and trade balance (exp: A$2.13B) figures for May. These indicators paint a much clearer picture of the current situation and are much more forward looking than yesterdays GDP. Expect AUD to be more sensitive to downside surprises rather than strong data given the climate of the US session. Retail sales have been relatively flat for the past year and anything +/- 0.3 pp is a fair sized miss. The trade balance would tend to overshadow retail sales for an export-driven economy like Australia but we caution against trading the headline because it could be skewed by the Japanese disaster (Japan buys the second most Australian exports) or by mining/agricultural backlogs. Aside from that, a miss of +/- $0.5B will leave a mark on AUD.