Intraday Market Thoughts

Risk Battered, Not Beaten

by Adam Button
Jan 23, 2014 23:09

The outlook for risk assets is worsening but we haven't necessarily hit a tipping point. The Swiss franc was the top performer while the Australian dollar lagged and hit a fresh cycle low. A busy week in Asia finishes will a quiet calendar but plenty of attention will be on the plunging Nikkei and watching whether emerging market pain spreads.  

Markets have been uneasy this year despite the economic optimism. Stocks have been reluctant to rally and USD/JPY had been trapped in a tight range. The crack in the dam finally came from the Chinese PMI. It missed expectations and set off a wave of worry that grew into a tsunami as emerging markets were washed away.

The worst pain was in Argentina where the peso fell 14% but Turkey, South Africa and Venezuela all came under attack. That sparked a demand for safe assets, boosting gold, bonds and major currencies. As usual, the yen benefitted most but the euro and pound impressively kept pace.

An equally severe round of risk aversion earlier in January amounted to nothing so there's a case for patience here. If USD/JPY and the S&P 500 break through the Jan lows, serious caution is warranted.

One thing that stands out from Thursday trading is weakness in the Australian dollar. The Q4 CPI reading was significantly higher than expected yet AUD/USD couldn't rally. The correlation between US stocks and AUD has also recently flipped so lower stocks today might have been good for AUD/USD (the stock drop didn't hurt CAD or NZD) yet the Australian dollar hit a new low at 0.8732. The inability to rally in different environments is telling.

Economic data added to the malaise in markets. The US Markit PMI was at 53.7 compared to 55.0 expected while initial jobless claims and existing home sales were virtually inline with estimates. In Canada, slightly better retail sales gave the loonie a small bump.

In today's Premium Insights, we added 1 USDJPY trade in in anticipation of further volatility in equities and yen pairs as well as Pre-FOMC flushing of positions. We're also adding 2 new trades in AUDJPY with 3 new charts. We exited tne remaining GBPUSD long at 1.6620 with 180 pips gain. Full access in the Premium Insights.
Act Exp Prev GMT
49.6 50.6 50.5 Jan 23 1:45
Services PMI [P]
51.9 51.4 51.0 Jan 23 9:00
BoC CPI Core (DEC) (m/m)
-0.4% -0.1% Jan 24 13:30
CPI (DEC) (m/m)
-0.2% 0.0% Jan 24 13:30
CPI - Core (DEC) (m/m)
-0.3% Jan 24 13:30
BoC CPI Core (DEC) (y/y)
1.3% 1.1% Jan 24 13:30
CPI (DEC) (y/y)
1.3% 0.9% Jan 24 13:30
Existing Home Sales (DEC)
4.87M 4.90M 4.83M Jan 23 15:00
Core Retail Sales (m/m)
0.4% 0.3% 0.5% Jan 23 13:30
Retail Sales (m/m)
0.6% 0.3% -0.1% Jan 23 13:30
Continuing Jobless Claims
3,056K 2,930K 3,022K Jan 23 13:30
Initial Jobless Claims
326K 326K 325K Jan 23 13:30
Jobless Claims 4-Week Avg.
332K 335K Jan 23 13:30

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