The dollar is trading on the ropes against the yen as risk aversion intensifies and volatility perks up. With stock prices moving lower and implied volatility starting to percolate, currency trading activity is picking up as investors prepare for whipsaw price action.
The Federal Open Market Desk usually sees large draining needs around the turn, which is quarter and year end, as financial institutions make sure they have sufficient funds available.NY Fed broke the $200 billion barrier in its daily reverse repo accepting $200.07 billion at 0.25% from 51 bidders, compared to a 3-day reverse repo totaling $174.7 billion with 48 counterparties Friday.
TheVIX equity volatility spiked over 15% higher to the 14.00 area, having traded as high as 14.48 and as low as 13.28 in choppy trade with stocks gapping lower at the open and remaining defensive. That ended the downtrend from 20.51 post-ECB highs to lows of 11.76 last Thursday, removing some complacency from the stock market as we head into the first head-on-head presidential debate.
Part of the decline has been the contraction in the US housing data. The 7.6% U.S. new home sales drop to a still-solid 609k August rate trimmed the upwardly-revised July pop to a 659k expansion-high from 579k in June to leave a respectable sales path into Q3. New home sales look poised for a cycle-high Q3 average in the 619k area, after a Q2 spike to a 572k prior cycle-high from a 529k pace in Q1.
The markets saw rates of 508k in Q4 and 487k in Q3 of last year. New home sales have risen 126% from the 273k record-low in February of 2011, alongside smaller cyclical climbs of 46% for pending home sales and 55% for existing home sales from lows in 2010. We saw similarly big cyclical climbs of 139% for housing starts and 122% for permits from lows in 2009, and 149% for new home construction from a low in 2011. Most housing metrics performed well through the spring and summer season despite weak residential construction in the Q2 GDP report, and some weak monthly new construction figures through July that imply residential construction weakness in Q3 as well.
In other data, the U.S. Dallas Fed’s manufacturing index rose to -3.7 in September after falling back to -6.2 in August. The index had been on an improving trend the last couple of months, and it seems to be back to that again. However, it remains in negative territory, where it’s been since January 2015 due to the effects of the oil recession. The low was -34.6 in January 2016. Improvement was broad-based, and especially in the labor indicators. The employment component jumped to 2.3 after falling to -5.0 previously, with the workweek climbing to 3.7 from -4.5. Wages surged to 21.0 from 13.7. But, new orders dropped to -2.9 from 5.3, resuming its negative bias.
The weaker than expected data has pushed the dollar to the brink against the yen as it is testing support levels and is poised to break through which could generate further risk aversion and spill over into equity markets.
Article Submitted By Community Writer