Risk sentiment picked up in the U.S. equities markets as traders responded to a positive start to the earnings season. Better than expected earnings from a major U.S. aluminum producer, Alcoa, sparked the improvement in risk appetite and sent stocks soaring and the dollar tumbling. The Dow Jones surged 1.44% and S&P rallied by 1.54% adding an impressive session to its now 6-day positive streak. Technical resistance was tested as the S&P was rejected at a daily trendline resistance and base of its daily ichimoku cloud in the 1098 area. Yen crosses rose as a result of an increase in risk appetite. Commodities posted gains following the positive earnings announcement with gold making highs just beneath 1218 and oil rising as much as 3.0%.
The dollar lost footing after the May U.S. trade deficit widened to -$42.3B from -$40.3B in the prior month. This disappointed the market expectations of -$39.0B and sent the dollar lower against the majors. EUR/USD rallied to a 2-month high around 1.2740 and the USD/JPY dropped to the 88.00 zone before bouncing to the current 88.60 area. U.S. optimism indicators posted weaker than expected numbers adding to the negative US news stream. IBD/TIPP economic optimism was released at 44.7 vs. expected 45.5 and prior 46.2 and NFIB small business optimism was 89.0 vs. expected 91.2 and a previous 92.2 reading.
The U.S. Treasury Department was busy today releasing its monthly budget statement as well as auctioning $21bln of 10-year notes at a yield of 3.119%. The yield on the benchmark 10-year notes rose for the fifth consecutive day, its longest rally in 10 months. Treasuries were sold off as risk sentiment improved and the market’s demand for save haven assets diminished. June’s monthly budget statement was in line with expectations at -$68.4bln vs. May’s -$94.3bln.
The British pound built on earlier gains as known hawk Andrew Sentance reiterated his view that the BOE should begin to raise rates citing inflation concerns. GBP/USD jumped over to roughly 1.5190 from about 1.5070 this morning before settling just above 1.5150.
Canada’s trade balance registered a deficit of -0.5bln which was worse than the expectations of a flat trade balance and the prior surplus of 0.2bln. USD/CAD made new three week lows just below the 1.0280 zone and spiked up to 1.0370 before dropping back to the current 1.03 area.
On the calendar for the Asia/Pacific session is New Zealand retail sales and REINZ housing price index, Australian Westpac consumer sentiment and RBA Governor Stevens is scheduled to speak.