- ADP US July employment +324K vs +189K expected
- EIA weekly US oil inventories -17049K vs -1367K expected
- US to increase Treasury auction sizes as debt swells
- Jamie Dimon: The Fed might have to go 'a little higher' on rates
- Yellen calls US downgrade "puzzling" in light of US economic strength
- Kansas City Fed names Jeffrey Schmid as new president
- SEC now ready to consider ETH futures - report
- UK inflation expectations fall in latest poll
- Fitch says final decision on a US downgrade was taken on Monday
Markets:
- WTI crude oil down $1.54 to $79.84
- Gold down $9 to $1935
- US bond yields hit the highs of the year
- S&P 500 down 1.4%
- US leads, NZD lags
The US gets downgraded and the US dollar leads the way. The EIA reports a record weekly draw of oil inventories and oil falls $2. It was that kind of day and the worst day for US stocks since late April.
Let me try to stitch it all together.
The key thing to note is bonds. Yields rose led by the long end and some of that is likely due to the downgrade but ADP was also hot, arguing for a higher-for-longer Fed scenario. In addition, the coupon sizes in the Treasury refunding announcement were also higher, highlighting the difficulty in swallowing the US debt supply.
All that helped to lift USD/JPY from a low of 142.25 in Europe to 143.40. It also led to a broader US dollar rally as the pound and euro stumbled. That pair sank particularly hard into the London fix and some of that may be related to angst around the Bank of England and a growing belief that they will play it safe with a 25 bps hike rather than 50 bps.
Commodity currencies were getting it from all angles as risk trades were beaten up. Oil held in for awhile but there was something of a 'sell the fact' on the huge draw as it had been in the API data and was rumored before that. There's also algo-related selling any time the broader market stumbles.
The bigger lesson in today's price action isn't that debt and downgrades don't matter; it's that they don't matter until there's a recession and the fiscal taps need to be reopened.
