North Korean H-Bomb?:
Increased uncertainty and market pessimism around geopolitical tensions and of course the ever present issue of what to believe coming out of the planned Chinese economy has seen one of the most eventful starts to the year in my relatively short memory (I’m looking forward to getting Tweets about how it was back in the 70s and 80s now).
The policy of making sure the fixed yuan is weakened by the PBOC, another PMI miss and the reported North Korean nuclear bomb test all conferred to unleash a perfect storm throughout the region. I find it almost comical that a nuclear test out of an unpredictable, rogue state with a point to prove could be interpreted as the event with the LEAST impact on the day but hey, it’s 2016 now!
As you can see from yesterday’s @VantageFX feed, the real damage to the Aussie dollar was done on the back of the PBOC setting the USD/CNY mid-point and not actually any nuclear tests… but that’s not as exciting to talk about!
Rather than an atom bomb, the nuclear test has been reported by the North Korean’s as a hydrogen bomb and if confirmed would be a major upgrade to North Korea’s military capabilities. There is a difference between a hydrogen bomb and an atom bomb, as explained here on Quora:
“An atomic bomb is about fission. You’re breaking up very large atoms (Uranium or Plutonium) in a super-critical chain reaction. A hydrogen bomb, or a thermonuclear bomb, uses fusion in a chain reaction.”
With North Korea’s history of… well making stuff up, the fact that the seismic readings didn’t out rate any of their previous tests has led to many experts questioning their claims and markets taking a ‘just another one’ view. For now.
December Fed Minutes:
Overnight also saw the release of the Fed Minutes from the December meeting, with just about all members stating their confidence in the current direction that inflation is heading, as well as showing confidence in the economy reaching its 2% target over the ‘medium term’.
In a fairly standard minutes release that gave enough contradiction to keep traders interested heading forward, the minutes made sure to stress that liftoff was still a ‘close call’ and shone the light on some of the dissent still present in the ranks of the Fed.
Read the full release from the Fed here.
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Chart of the Day:
What a horrible start to 2016 for stocks, with the US S&P 500 index logging its worst three day run to start a new year since the dark days of the 2008 GFC, while at the same time giving Vantage FX indices traders some action to take advantage of.
SP500 Weekly:
Click on chart to see a larger view.
SP500 Hourly:
Click on chart to see a larger view.
I’ve included the weekly for context and then marked the start of the year with the red vertical line on the hourly. As you can see, it’s been all downhill beginning first thing Monday.
The damage was done early and the bulls have shown no power in the struggle as the index continues to slide away.
On the Calendar Thursday:
USD FOMC Meeting Minutes
AUD Building Approvals m/m
AUD Trade Balance
CAD BOC Gov Poloz Speaks
USD Unemployment Claims
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