Short-dated yields rose to historic highs after strong US Retail Sales and an upward US GDP revision, but the yield curve flattened by the close, leaving the dollar in the backseat.
Chart: EUR/USD
US Retail Sales came in at 0.7% compared to 0.3% expected, and core Core at 0.6% versus 0.2%. Both were revised higher. The dollar closed slightly lower despite increased Fed hike expectations (37% vs 50% Jan) and upward revisions in GDP from Atlanta Fed GDPNow, from 5.1% to 5.4%, as investors weighed in reduced term premium on bonds from less debt issuance. However, European yields were up with a drop in the bid-to-cover, driving EUR/USD a tad higher from $1.056 to $1.0578, exposing $1.06.
China’s economy grew faster than expected in Q3, indicating that recent PBOC measures helped support the country’s recovery. Year-on-year, GDP grew 4.9% compared to 4.4% forecasted, with the quarterly print rising 30bps to 1.3%. Industrial data and Retail Sales also beat expectations in September. However, headwinds remain as Country Garden, China’s largest private property developer, is at risk of defaulting on its offshore debt. Metal gold was seen trading a little higher on the better data, with a 1% gain added early Wednesday, supported by safehaven flows. $1953 is next resistance while trading above $1923 an ounce.
US crude stocks fell by 4.38M barrels on Tuesday, steeper than the 1.26M expected, sending oil prices 0.75% higher. The rally continues on Wednesday, with oil prices having spiked some 1.5% after investors factored in an air strike at a Gaza hospital, raising fears of supply cuts. Bears rejected $89 a barrel, but WTI is still treading shy of $90, with support at $87.20.
The Australian union alliance has reached an agreement to endorse pay and conditions deals at Chevron’s LNG, ending an impasse that had led workers to threaten renewed strikes in the upcoming days. The agreement is expected to eradicate the risks of additional strikes, taking the edge off European gas prices and currently seen as supporting the Aussie. AUD/USD was up 0.37% yesterday and another 0.20% early Wednesday to 0.6376, exposing 64 cents. Support is expected to be near 0.6550.