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Currencies were unusually affected by the US wholesale inventories data last night, which spurred significant US dollar weakness.
US wholesale inventories declined 0.1% month-on-month in July, lower than expectations for a 0.3% expansion and the first time it has declined since May 2013. This is likely to have a slight impact on US Q3 GDP through the inventories component.
The WIRP probability for a September Fed rate hike was unchanged at 28%, where it has stayed firmly all week. However, the moves that the inventories data spurred in the currency markets implied a noticeable backtracking in market expectations for a rate hike next week. The US dollar index (DXY) declined 0.5%, largely driven by strength in the EUR (+0.6%) and JPY (+0.2%) against the USD.
The Aussie dollar also saw an impressive bout of strength in the wake of the inventories data. The Aussie was weakening into the inventories release and then gained rapidly against the USD, closing up 0.8%.
Reactions in the S&P 500 were relatively muted, as a lot of the mid-day gains were given away just before the close. But it was the high-beta healthcare and IT sectors that lead the index, followed by the energy sector, which was boosted by the jump in oil prices overnight.
Some other factors likely to affect the ASX today:
- The US Energy Information Agency (EIA) announced that oil production fell to a one-year low in August and was likely to keep falling into 2016. This seemed to shroud out the higher than expected growth in oil inventories, seeing WTI rise 4%. This may see some boost to the energy sector after a bit of a sell off yesterday as buyout speculation calmed.
- Dalian iron ore futures reached a 10-week high after they climbed 3.4% overnight, as iron inventories at ports continue to be run down. This could help support some of the miners today, alongside any further speculation that Fortescue will begin selling off some of its assets.
- The ASX VIX spiked up to 26.3 yesterday after falling back to 23. While this is lower than its recent highs, it is still tracking at levels not seen since 2011.
- Short interest in the ASX has continued to grow this week. With the majority of short positions focussed in the materials, financials and energy sectors, accounting for 28.2%, 24.6% and 16.2% of total short positions respectively. Collectively, these three sectors account for 69.1% of all short positions.