Market Drivers December 5, 2017
Europe and Asia
AUD: Retail Sales 0.5% vs. 0.3%
GBP: UK PMI Services 53.8 vs. 55.0
EUR: Retail Sales 0.4% vs. 1.5%
North America
USD: ISM Non-Manufacturing 10:00
The overnight trade was dominated by flows in Aussie and cable with the former posting some of its best gains in a month while the latter continued to seesaw on every Brexit headline.
In Australia, a double dose of good news helped push AUD/USD to .7650 as it reached its best levels since mid-November. Australian Retail Sales printed at 0.5% vs 0.3% eyed, making it the first beat of consensus forecast in more than 3 months. Retail Sales have been a sore spot for the Australian economy as both wage growth and consumer spending slowed to a crawl this year. So today’s beat was a welcome bit of news for Aussie bulls and it was reinforced by a slightly more upbeat RBA statement which noted the growth in jobs and omitted the reference to low inflation “for some time”.
Overall, conditions in Australia remain steady and monetary policy should continue to be neutral for the foreseeable future. After having been sold for the past few week, the relief rally in Aussie was due, and the pair could climb higher still towards the .7700 figure before the end of the week. However, the rally is likely to be capped at those levels unless US data shows surprising weakness as US yields begin to decline once again.
Meanwhile, sterling continued to seesaw in Asia and early London trade, dropping to a low of 1.3360 on disappointment that there was no announcement of a deal yesterday, only to pop back on comments from Philip Hammond that talks were progressing well. Behind the scenes, the key issue is the status of Northern Ireland and the unfettered movement of goods and services across all of the Irish isles. PM May appears ready to concede those points to the Irish, but the carving out of these rights could open up pandora’s box for Ms. May as the Scotts and even the city of London (which are both hot spots of Remain sentiment) may seek the very same privileges. In addition, Ms. May’s junior coalition partners in the hard right DUP party could withdraw from the government on any such deal. For now the markets are in a wait and see mode, but volatility in cable is sure to explode on any tangible news one way or the other.
In North America, the focus will be on ISM Non-Manufacturing which is expected to come in slightly below last month's readings. Traders however, will look underneath the headline to see how the employment and prices paid components performed. If both of those numbers miss, USD/JPY could quickly dip below the 112.00 figure after failing to hold 113.00 in yesterday’s trade.