Market Drivers January 11, 2017

EAU data beats, antipodeans lead
UK data mixed, cable steady
Nikkei 0.979% Dax -0.07%
Oil $53/bbl
Gold $1292/oz.

Europe and Asia:

AU Retail Sales 0.4% vs. 0.3%
UK GDP 0.2% vs. 0.1%
UK Trade -12B vs. -11.4B
UK MP -0.3% vs. 03%

North America:

USD CPI 8:30

Aussie and kiwi were the biggest winners in relatively quiet Asian and early London trade today, as markets awaited US CPI data due at 13:30 GMT.

Better Australian Retail Sales helped start the rally in high yielders with Aussie pushing through the key .7200 resistance level in the immediate aftermath of the release. Aussie retail sales printed at 0.4% vs. 0.3% indicating that final demand remains steady despite trade war fears and deteriorating housing market.

However, the true cause of the rally was the decline in US yields with benchmark 10-year rates down 3.3 basis points which forced Aussie and kiwi bonds spreads to widen. Both pairs saw heavy buying in afternoon Asia trade with Aussie running to a high of .7225 and kiwi clearing the .6800 barrier to push towards .6840. If US CPI data prints cooler than forecast pushing yields even lower, both antipodeans could see more buying as the day proceeds.

Meanwhile, in Europe, the focus continues to be on Brexit as the postponed parliament vote looms next week. There was some talk that Junker and Tusk may offer a letter of assurances on the Irish backsto issue, but as Katya Adler of BBC noted in a tweet, "Realisation in EU at this stage that reassurances alone won't swing it for the EU-Theresa May #Brexit deal. But there's also a realisation that parliament is so split that offering something 'significant' now might be a waste of time and political capital."

UK data printed worse than expected except for GDP which came in at 0.2% vs. 0.1%, but even there Markit economics noted that "Latest 3-month rolling average of UK GDP shows growth slowing to 0.3% in November, following the easing trend is seen in #PMI data. Survey data also signal a further slowdown into December amid a softening in the UK's dominant services economy." Brexit has basically ground all business activity to a halt as markets await some resolution of the issue before committing any investment capital and if UK politicians allow the situation to devolve to a no deal ending the collapse in economic activity is sure to become much worse.

For the time being, cable held its ground with the pair steady at 1.2750 mark as markets await the results of next week's Parliament vote which is sure to inject volatility into the pair regardless of which way it goes.

In North America, the focus will be on CPI data with markets looking for 2.2% reading on a core basis. If the data comes in as forecast or cooler it would confirm the Fed's recent move towards a neutral stance as it would show that despite a steady rise in wages price pressures remain muted. That should provide further support for the anti-dollar rally as the day proceeds with EURUSD once again making a run towards the 1.1550 level on further compression of US yields.



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