Dollar Swings Wildly After Upbeat US Economic Data

Well, that escalated quickly.

The dollar soared and yields rose (some more) following better than expected economic data out of the US.

As tipped here earlier this morning, the Dec. ISM print was a blockbuster, coming in at 54.3 versus consensus 53.8. Here’s the breakdown via Bloomberg (note the bolded bullets):

• Forecast range 52.0 – 55.0 (76 economists surveyed)
• PMI rose to 54.7 vs 53.2 last month
• New orders rose to 60.2 vs 53.0
• Employment rose to 53.1 vs 52.3
• Supplier deliveries fell to 52.9 vs 55.7
• Inventories fell to 47.0 vs 49.0
• Customer inventories unchanged at 49.0
• Prices paid rose to 65.5 vs 54.5
• Backlog of orders unchanged at 49.0
• New export orders rose to 56.0 vs 52.0
• Imports unchanged at 50.5 vs 50.5

(Barclays, ISM)

Here’s Citi’s quick take:

Today’s stronger than expected ISM manufacturing report represents another positive survey data point amidst a range of responses from consumers and businesses that indicate growing optimism. While only a “soft” data point, ISM manufacturing is correlated with “hard” data on real economic activity (e.g. industrial production and manufacturing payrolls). Survey data like today’s ISM bode positively, but it will be up to subsequently released “hard” data to confirm or overturn the recent run of positive sentiment.

And here’s a look at surging price inflation (perhaps presaging a stagflationary impulse that could grow if Trump’s fiscal stimulus does more for inflation than it does for late cycle growth) as well as remarkably resilient export orders:

(Charts: Citi)

Needless to say, the EURUSD plunged as the strong data only served to reinforce expectations for policy divergence. “The drivers are pretty clear cut right now: its about the divergence in rate spreads, spurred by the growth and policy outlook between the euro and U.S. dollar,” Mark McCormick, North American head of foreign-exchange strategy at TD Bank told Bloomberg.

And then, it all reversed course in the blink of an eye: 

Here’s Bloomberg’s explanation:

USD/JPY fell back quickly from its 118.60 session high to trade under 117.60 in quick fashion, tracking a retreat in the UST 10y yield from session high; the dollar’s sharp reversal appeared to catch traders wrong-footed, a trader in London said, as USD longs were forced to unwind after GBP and EUR rebounded off their lows.

• EUR/USD rebounded to trade above 1.0420 after hitting a fresh 14-year low at 1.0341
• FX flows are moderate in the session and liquidity is generally ok, albeit with a few soft patches, a trader in New York said
  • USD/JPY found a gap from 118.30 to 118.15 in the drop after topping out at 118.60; price moves are fast and choppy, the trader said
• USD has pared gains to 0.6% as measured by the Bloomberg dollar index after rising as much as 1.1% on the day

In other words: who the hell knows.