The triple witching day created some minor volatility in the markets today as the S&P 500 closed lower at 1159 down 6 points. It was the first real down day in the past 12. The dollar and the commodity markets were the impetus for the down day as, the dollar rallied and crude oil and gold sold off. There were a couple of factors that put the markets on the defensive today, and one of them was the change in rates by the IRB.
India surprised the market by announcing a 25 basis point hike in key rates today. The surprise was only in the timing. This brings the repo rate to 5% and the reverse repo rate to 3.5%. To the extent there was speculation of a rate hike, it was more about China than India. That said, India had raised reserve requirement earlier this quarter and many understood a rate hike was a question of time. That being said, the timing did take some market participants by surprise which lead to a rally in the dollar.
In economic news, Canadian retail sales in January rose a robust 0.7%, which was slightly stronger than the 0.6% rise expected by analyst, according to Canstat. This small upward surprise occurred despite new car sales being much weaker than expected by dropping 2.3%. The offset was an unexpectedly large surge of 1.8% in ex-auto sales that was more than triple the 0.5% gain expected going into the report. The jump in ex-auto sales was attributable to sales at building and outdoor home supplies stores rising an impressive 7.4%. This strength was attributed to households making purchases before the expiration of the federal government’s Home Renovation Tax Credit. This factor may also have boosted sales at furniture, home furnishings and electronic stores, which rose 2.5% boosted by surge in sales of floor coverings. The Canadian dollar continued to move toward par.
The combination of mixed political signals in the Euro zone and technical resistance created the failure in the upward movement of the Euro. In general, a bottom will be tested multiple times prior before support is created. The Euro again felt pressure from the 50 day moving average which has held the Euro in a down trend for the past 4 months. Additionally, the RSI 50 level has created resistance where technical traders have become sellers.
