Copper price collapses over 7% in less than 1 hour; abysmal US retail sales report; EUR on a rollercoaster ride; JPY was again an outperformer

By Raiko Shareef

NZ Dollar

The NZD sits with familiar peers AUD and CAD at the bottom of the G10 leader board, all having fallen against the USD despite a general USD sell-off. NZD/USD is 0.2% softer at 0.7720.

Overnight, NZD/USD traded through 0.7700 but only very briefly. That marks the first tentative line of support, but we doubt it will hold for long.

NZD/AUD spent most of yesterday flirting with a break of the one-month high at 0.9460. The AUD’s collapse in the afternoon put paid to that notion, but we’ve now returned to within striking distance.

The march higher in JPY in a negative risk environment continues to drag NZD/JPY lower, which is down by 1.0% this morning at 90.30. We could well see a trip below 90 in the near-term, though we see the cross remaining in the high 80s through 2015.

Today, NZ food prices are due, but are unlikely to move the market. We pick a 0.7680 – 0.7750 range for NZD/USD.

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Majors

Quite the volatile 24 hours in markets, with a sudden collapse in copper prices, an abysmal US retail sales report, and the ECB receiving what looked like a green flag to buy bonds next week. All up, investors are bruising. Equities are lower, bond yields more sharply so, and the JPY is stronger.

Copper prices snapped lower out of the blue yesterday afternoon, dropping by over 7% in a little less than an hour. It was the sharpest single-day move since mid-2009. Predictably, commentators pointed to overriding concerns about global growth.

Copper’s drift lower through December suggests there is probably some element of truth in that, but the sudden collapse points to something more mysterious. In any case, the AUD was walloped lower by over 1% in short order, but has since retraced most of its loss. It sits 0.3% weaker for the day at 0.8150.

EUR had a rollercoaster ride, initially plunging on the European Court of Justice’s ruling on the legality of the ECB’s emergency program in 2012. The Court ruled those measures came within the ambit of monetary policy. This encouraged investors that expect a full-blown QE program next week, and saw EUR trip 80pts lower.

But that was more than reversed by a woeful US retail sales report. Headline sales were expected to fall slightly, as gasoline sales dropped thanks to the collapse in price. But ‘core’ sales, which excluded automobiles and gas, dropped by 0.3% m/m in December, when a 0.5% gain had been expected.

Since oil entered its bear market in Q3 2014, analysts (including ourselves) have been touting the economic boost this represented, mainly through the impact on consumers. From this report, it is clear that the impact has not yet fed through to US consumers. The market was disappointed, and the USD was sold heavily. We suggest that some patience is warranted, in terms of seeing the full benefit of lower oil prices.

The JPY was again an outperformer against the USD, coming within a hair’s breadth of 116. Oil prices were rather subdued, with Brent down only 0.9% and WTI actually 0.3% higher. Nevertheless, CAD weakened through 1.20 for the first time since 2009.

Today, the main event is the Australian labour market report. While we still do not fully trust the data, we suspect the market will still react to it. The consensus is looking for a 5k rise in employment, while our NAB colleagues are picking a 10k fall. In the scheme of a notoriously volatile series such as this, the difference is not particularly immaterial.

Elsewhere, we will keep an eye on the swathe of US data tonight, including the Philly Fed and Empire surveys. We suspect good news here will help steady the nerves of the long USD community.

All its research is available here.