Asian rally falters on stronger US dollar

Tuesday, December 23, 2014

Asian stocks struggled to keep the upward momentum going during overnight trading as mainland Chinese indices sold off as trading volumes thinned owing to the Japanese market holiday. Both the Shanghai Composite and the CSI 300 reversed direction, trading 3% and 2% lower respectively as investors took profits after the recent rally and ahead of Christmas.

Risk assets have experienced a broad rally over the past few sessions after comments from US Fed chair Janet Yellen eased concerns regarding the path of an eventual interest rate rise. However, underlying fundamentals remain unchanged with a significant supply overhang in the crude oil market seeing front month Brent futures reverse yesterday’s early gains before closing just above $60/bbl. Activity this morning has seen the global crude benchmark struggle to lift off of this key level as investors continue to mull over comments from OPEC.

The dollar index extended gains for a fourth straight session yesterday, rallying towards 89.794 after intraday losses earlier on saw the index trade towards previous support at 89.370. The dollar has gained 1.9% against a basket of major currencies over the past four sessions after building on support at 88.00 as confidence in the US economy continues to gain pace.

Three month LME aluminium prices briefly rallied off a six month low during overnight trading, rising towards $1,900/tonne as investors attempted to recover some of the previous session’s losses ahead of US data. However, these early gains were short lived and aluminium prices have since slipped back towards $1,880/tonne, dragged lower by weaker crude prices ahead of today’s data releases. Prices could build on near term support on any positive surprises with investors expecting durable goods orders to grow by 3% in November while the FHFA house price index is expected to post modest gains of 0.3% m/m in October.  With the Richmond Fed manufacturing index and the University of Michigan confidence index also due out today, market participants will have plenty to keep them engaged throughout the session.

DXY posts gains for four straight sessions

DXY Curncy DOLLAR INDEX SPOT 2014 12 23 07 48 48

LME 3-M aluminum prices struggle to lift off 6 month low

LMAHDS03 Comdty LME ALUMINUM 3 2014 12 23 08 00 36

Events for today

JP Market Holiday 

0200

CN

Nov

Leading Economic Index

0930

UK

Q3

GDP

1330

US

Q3

GDP & Personal consumption

1330

US

Nov

Durable Goods & New Orders

1400

US

Oct

FHFA House Price Index

1455

US

Dec

Michigan Survey

1500

US

Nov

New Homes Sales

1500

US

Dec

Richmond Fed

1500

US

Nov

PCE Deflator & Personal Income

OE:

Dec Coffee (LIFFE) 

Topics: Aluminium, DXY, LME
More from: Kash Kamal