The set up and subsequent action in the dollar Wednesday was perfectly paralleled to the fundamental significance of the ISMs factory report. Expected to print a neutral 50.0 read, any lean from the typically top market-moving indicator could have turned potential energy into a momentous run quickly. Looking to the majors, this is exactly what happened.
From an overnight perch at a four week high 1.3295, the EURUSD went on a two-leg drop totaling 145 points. At its own range high, the GBPUSD completely erased Tuesdays rally with a massive 270-point drop before a bottom was found around 1.9485. Prior to the New York session, the swissie-denominated pair was making a modest advance, but the full dollar swing helped earn the pair nearly 170 points through the early afternoon. Finally, the consolidation in the USDJPY turned to a breakout when the broad dollar bids advanced the pair nearly 100 points to 119.70, only arms length away from big resistance.
Yesterdays dollar action proved the currency market can move in the absence of major fundamental releases, but todays retort demonstrates a move headed by data more often than not holds the greater potential. Coming back to life, the economic calendar was loaded with more than one economic release this morning. First to hit the ticker, the weekly MBA application figure came in with the first positive number in three weeks, lining itself up with the favorable turn in Novembers sales data. The other housing-related report, Novembers construction spending, was also doing its part to brighten the outlook for the hard-hit sector. Though spending contracted for the third consecutive month, the smaller than expected dip and big upward revision to October was still notching a tick in the bulls column. Initially, the 1.0 percent plunge in October represented the biggest drop in over five years, but the adjusted 0.3 percent slip was well within normal bounds.
After the minor indicators were digested, the market focused on the days more imperative statistics. One of these reports was the ADPs private employment change for December. Many economists believe the young, proprietary report has one of the best correlations to the markets favorite market mover; the NFPs. This would suggest the 40,000 person layoff last month, the first negative number since April of 2003, was setting the governments report up for an equally disappointing read. Whats more, the smaller Hudson Employment Index had also revealed marked its own decline around the same time this morning. However, the market is likely to remain cautious regarding the predictive power of the ADP number. This is because, though the past few months have seen smaller gaps between the ADP and NFPs, much of it may be attributed to the stabilization in monthly employment figures. With this air of prudence in mind, speculators will now turn to the employment component of the ISM services figure to further solidify the markets official consensus.
In retrospect, the foreboding ADP print offered only modest influence on dollar as the masses were too intently focused on the later release of the ISM manufacturing survey. After falling into contractionary territory for the first time in over three-and-a-half years last month, the stumbling factory sector quickly became a focal point for bears. Furthermore, with the official consensus set exactly at the pivotal 50 level, a strong dollar move was inevitable. Subsequently, when the headline figure came in at 51.4, a wave of dollar bids was triggered. From the component numbers, production and new orders both picked up while an improvement in the employment sub-gauge was adding its own level of interest. Conversely, the inflation monitor fell back below its own 50.0 level to pull the cooling inflationary trend back into perspective.
Though global equity markets were broadly mixed Tuesday morning, US benchmark indices were quick to put in for their own New Year rally. In the opening hours of trade on Wednesday, all three indices surged; but swift retracements quickly swept the legs out of the fledgling move. The Dow was the only gainer by the afternoon with a 0.2 percent advance to 12,484.21. Both the S&P 500 and NASDAQ Composite were off 0.1 perecnt to 1,416.74 and 2,414.52 respectively. From the list of market movers, blue chip Wal-Mart Stores moved on the previously reported rebound in December sales leading shares 3.0 percent or $1.37 higher to $47.55. Elsewhere, Home Depot CEO Robert Nardelli stepped down with a sizable severance package, yet his exit still prompted a 3.3 percent or $1.34 advance to $41.50.
Decoupling from its correlation to the dollar, treasury yields were relatively unresponsive to todays better than expected ISM indicator. The T-note was 1/32nd higher to 99-19 by 18:00 GMT, with its yield unchanged at 4.676. At the same time, the thirty-year bond was pushing only 2/32nds ahead at 95-19 while its own yield held at 4.781.
