Market Drivers August 15, 2019
AU Labor beats
UK Retail Sales beats
Nikkei -1.21% Dax -0.63%
UST 10Y 1.56%
Oil $54/bbl
Gold $1517/oz
BTC/USD $9800

Europe and Asia:
AUD AU Labor 41.1 vs. 14.0
GBP UK Retail Sales 3.3% vs. 2.6%

North America:
USD Retail Sales 8:30

There was a decidedly risk-on tone in global equity markets with USD/JPY spiking nearly 90 pips in a matter of minutes at the start of London trade, but the pair gave up much of its gains in the morning dealing after China came out with harsh rhetoric in response to proposed additional 10% tariffs by US.

The global day started well on the data front with Australian employment beating consensus by a wide margin as jobs increased by 41K versus 14K. More importantly, fully 35k of jobs came from full-time employment indicating that growth remains robust despite headwinds from US-China tensions. However, the trend unemployment rate did rise which certainly provides RBA scope for further easing albeit at a 25bp pace. In any case, Aussie bounced slightly to .6785 on the news but gave up most of its gains on China headlines. Still given the generally robust fundamental background Aussie could be ripe for short covering if the risk tensions ease.

In UK Retail Sales data also beat the forecast coming in at 3.3% versus 2.6% as online sales spurred spending. UK data with generally stable employment picture, growing wages and robust consumer spending is performing far better than anyone could have imagined given the threat of a no-deal Brexit and if some sort of deal can be negotiated cable could quickly rise to 1.2500 or higher but with UK leadership intent on severing ties with EU political threats outweigh the economic data for now.

The tough rhetoric from China which noted that Trump broke the Osaka agreement and that the US would face retaliatory measures if 10% tariffs went into effect indicates that China is no longer willing to be conciliatory in its tone and that quickly dissipated any positive vibe the markets were feeling this morning. USD/JPY was back to session lows at 105.80 and if markets take the new hardening tone as a sign of further trade war escalation the short will make an all-out assault on flash crash lows of 104.50. Still, with global economic data continuing to hold up and with central banks continuing to ease the economic background is far less dire than the price action seems to suggest. For now, however, politics drives all and FX continues to be headline-driven.