• Very slight risk on in equities
• FX flat
• Nikkei 0.18% Dax 0.18%
• UST 10Y 0.68
• Oil $31
• Gold $1955/oz
• BTCUSD $11007

Asia and the EU

• GBP UK Retail Sales 0.6%

North America Open

• CAD Retail sales 8:30

It’s been a very quiet night of trade in the capital markets with equities slightly higher while FX was essentially flat.

Although there has been a mild risk-on bid in Asian and early European trade today bullish sentiment has clearly cooled this week with Nasdaq feeling the most pain as investors have turned decidedly cautious.

The combination of less than stellar economic data and a hands-off Fed provided all the reasons needed for some profit-taking. As we noted earlier this week the tepid US Retail Sales numbers suggested that the easy part of the recovery trade is over while Fed’s wait and see approach has pushed the focus on fiscal stimulus depriving the markets of any further fuel for the time being. Little wonder then that stocks have stalled and no eco data on the calendar today the drive to lock in profits ahead of the weekend could drive stock lower again as the day proceeds.

In FX the price action has been moribund but GBPUSD continued to climb higher as it aims to recapture the 1.3000 level in the wake of better than expected UK Retail Sales. UK Retail Sales posted yet another strong month of recovery rising 0.8% versus 0.7% eyed as they moved above the pre-pandemic levels. The UK consumer aided by the government paycheck support scheme is clearly stronger than forecast and has returned with a vengeance. But the rebound in the pound as well as in UK aggregate demand may be short-lived as the country is seeing a fresh spike in COVID cases that may necessitate new lockdowns.

Meanwhile, the other pair that is defying conventional wisdom is USDJPY which continued to drip lower toward the 104.00 figure despite generally positive risk-on sentiment in capital markets. Analysts are attributing the discrepancy to the new incoming Prime Minister Suga who has vowed to increase deregulation in order to spur economic growth. The thinking is that the release of competitive factors would only exacerbate deflation and would drive real rates even lower. That seems like a stretch. More likely USDJPY continues to attract flows because traders are expressing risk-off concerns thorough the pair rather than the equity space. In the current market regime, USDJPY may be signaling a spike in volatility rather than just expressing today’s complacent mood.