Market Drivers May 15, 2017
Europe and Asia
NZD: Retail Sales 1.5 vs. 0.9%
CNY: IP 6.5% vs. 7.1%
CNY: Retail Sales 10.7% vs. 10.6%
North America
USD: NAHB Housing Index 10:00
The dollar was broadly lower on the first trading day of the week, losing ground against all of the major currencies with the exception of the yen. A new agreement between OPEC and Non-OPEC nations to curtail production all the way to March of 2018 helped to push oil higher and drive commodity currencies higher as well. Crude jumped to $49/bbl on news that Russia and OPEC decided to maintain curbs for another nine months. Although crude traders responded positively to the news it's hard to tell if today's move was made out of strength or desperation.
With crude sliding well below the $50/bbl mark, producers clearly had to cushion the downfall and today's OPEC announcement may serve as nothing more than a dead cat bounce if global demand does not pick up. To that end, the news out of China does not bode well for long term prospects for crude as Industrial Production came in at 6.5% versus 7.1% eyed and it's now very likely that Chinese GDP growth has slowed to the 6% level from 8% a few years ago. Still, for now the rally in commodities is clearly helping commdollars and all three rallied into the European session trade with kiwi clearing the .6900 level, Aussie inching towards the key resistance of .7450 and loonie drifting slowly but surely towards the test of 1.3600 support.
There is no major news releases scheduled for today, so US flows are likely to be driven by the action in equities and bonds. Friday's weak US Retail Sales data continue to depress US bond yields with 10 year down to 2.32% while the 30 year remained below the key 3% mark. Skepticism is creeping into the market that the Fed will hike rates 3 more times in 2017 given the tepid rate of economic activity. The market continues to operate under the assumption that H2 of 2017 will see markedly faster growth than the first half of the year, but that thesis is looking more dubious by the day.
As of now US growth looks to be anchored at the 1.5-2% rate which is likely to force the Fed to skip the September hike and only tighten policy 2 more times this year. The markets, however, appear oblivious to this risk, although USD/JPY has clearly stalled in its relentless climb higher and may be the first clue that expectations are being tempered.