A Mixed Night Where Gold Was The Big Winner

Originally published by AxiTrader

Key Takeaway

Risk. Or an increase in it seems to have captured the attention of traders again overnight with Gold above $1240 and USDJPY back below 112. But then if you look at the bond market, especially Europe and peripheral Europe, you’d swear that fears of risk and uncertainty had reduced.

That’s the conundrum traders and investors face at the moment as the positive of global reflation competes with the uncertainty around French elections, and the implementation of president Trump’s policy platform.

It’s why after all these years of high correlation markets in general, and assets in particular, are going their own separate ways as correlations break down. It’s also why just when the world goes passive active management might be back in vogue.

In terms of the overnight moves it means everything is mixed with specific reasons markets marched to the specific beat of their own drum.

What You Need To Know

• S&P 500 +1 (0.01%) 2294 (7.16 am Sydney)
• Dow -38 (0.19%) 20,053
• Nasdaq 100 +6 (0.11%) 5680
• SPI 200 +3 (0.1%) 5575
• AUDUSD 0.7630 -0.1%
• Gold $1239 +0.49%
• WTI Oil $52.44 +0.52%

International

• US stocks are mixed this morning with the Dow under a little pressure from banks but the Nasdaq and S&P 500 mildly higher. The winners versus loser in the S&P stands at 293 to 207 with 5 unchanged with 90 minutes of trade left.

• More interesting than stocks though is the rally in bonds overnight. Are we heading into a risk off world? Are traders getting edgy about stocks? It’s hard to tell given it’s only one night. It’s particularly had to tell because the move in bonds which saw US 10’s fall 4 points, German 10’s down 5, and French 10’s off 10 points is not necessarily consistent with the move higher in gold – at least the French, Spanish, and Italian rally anyway. So maybe it’s just a night of uncertainty and noise. Something to watch though.

• Fresh from his apparently conciliatory phone call with Austalia’s foreign minister US Secretary of State Rex Tillerson met with his Canadian and Mexican counterparts overnight to discus, among other things NAFTA.

• Donald Trump just can’t help himself. Last night he tweeted against Nordstrom (NYSE:JWN) who last week dropped his daughter Ivanka’s range from their stores. I’m still giving the Administration the benefit of the doubt. But the behaviouralist in me suggests stuff like this suggests it will be easy for the president to get bogged down in side issues. That in turn means some of the big ticket items could be delayed.

• China has weighed into president Trump’s immigration ban with the Xinhua news agency saying yesterday that the ban could be used against the US and the rest of the world and that “Banned countries on the list, such as Iraq, Libya and Syria, have been victimized by terrorism because previous US governments and other Western powers deliberately intervened for self-interests”.

• Also in China, a day after the release of data showing the larger than expected fall in China’s forex reserves data SAFE, the foreign exchange regulator, said it has cross border capital flows under control. “International payments will remain basically balanced, and risks from cross-border capital flows are generally controllable” SAFE said.

• Blackrock’s CEO Larry Fink sees a lot of “dark shadows” at the moment and noted he thinks “markets are probably ahead of themselves”. As someone who surfs at a very sharky beach on New South Wales Hunter Coast I know what he means. But like investors at the moment I keep going back into the water. I think it’s a good analogy for where markets are right now. There is much uncertainty, and certainly much risk from this aggressively untried president and his administration. Not to mention political risk out of European election this year. But as I have written often, and as this chart shows, the global improvement in economic data – the reflation – has supported stocks and given investors a chance to trust the data and hope president trump can deliver.

Australia

• How exciting. Two days where the Australian market defied futures traders and the bears and rallied. That was always a chance after rejecting the move below the 5600 support zone the day before. And with the physical market closing at 5651 the ASX200 is trying to finally break up and through the 1 month down trend.

• Yesterday’s rally was led by a big move in the banks which rose solidly. That’s interesting in itself at these levels. Gold stocks are likely to catch a bid today, likewise energy but finaincils in the US are under a little pressure. Metals have done well in the past 24 hours.

• That mix has futures traders shrugging with no real change in the SPI 200 this morning. For me the 5610/15 region needs to break in the SPI for the market to get a run on.

Forex

• The US dollar is mixed this morning but not too far from where it was this time yesterday. In US Dollar Index terms it traded a range of 100.06 to 100.64 and is at 100.34 now. That’s reflected in the euro which is back under 1.07 but almost unchanged from yesterday morning at 1.0682.

• The yen is trading either side of 112 at the moment with USD/JPY down about a quarter of a per cent at 112.05. Sterling is largely unchanged at 1.2516 while the Australian dollar is sitting at 0.7636 after again finding support above 76 cents.

• There has been plenty of interest in the Kiwi this morning with the RBNZ decision to leave rates on hold. That was unremarkable but the bank said:
  • "The exchange rate remains higher than is sustainable for balanced growth and, together with low global inflation, continues to generate negative inflation in the tradables sector. A decline in the exchange rate is needed."

• So we've seen it fall from 73 cents to around 0.7250 after the RBNZ announcement.

• One thing worth noting though is that data from Japan released yesterday showed that Japanese investors dumped US and French bonds in December. The data showed investors dumped $20.1 billion in US Treasuries. Helps explain the rise in US rates and also USD/JPY to a small extent.

Commodities

• Gold is at $1242, up 0.71% and $22 an ounce since the break of $1220. It’s now $5 shy of my initial target of the 50% retracement and the bulls look like they retain control of gold. Last night’s high around $1244.70 was almost bang on the 200 week moving average. That could be a hurdle. But overall the bulls look in control of gold at the moment and a simple Fibonacci extension of this years move suggests a run to $1254.

• Crude oil fell heavily yesterday after a big build in after the big build in API crude inventories. But overnight when the EIA data itself showed a massive build of 13.8 million barrels crude is back at $52.39 a barrel this morning. That’s around $1 a barrel of the lows of the past 24 hours. It’s interesting price action.

• Elsewhere in oil Qatar said the market can cope with an increase in US shale oil. Key to Energy Minister Mohammed al-Sada assertion that the market is “gradually accommodating shale oil and shale gas” is that while at current prices “some fields can be developed profitably” prices would need to rise to “justify further development in high-cost oil fields”.

• He’s kind of right I guess and WTI increasing looks like it is in a 4-5 dollar range. $50.50 on the bottom and $55.50 on the top with an even tighter inside range.

• Copper is higher again this morning back up at $2.67 as traders focus on the Escondida (BHP Billiton Ltd (AX:BHP) is reported to have been halting operations) and Freeport McMoran supply disruptions that are looming. It too is mapping out a range and waiting for the next shoe to drop.

Today's key data and events (all times AEDT)

• Australia - HIA New Home Sales (MoM) (Jan) (11am)
• New Zealand - RBNZ Interest Rate Decision, Monetary Policy Statement (7am); RBNZ Press Conference (8am); Building Permits s.a. (MoM) (Dec) (8.45am)
• China - Producer Price Index (YoY) (Jan), Consumer Price Index (MoM) (Jan), Consumer Price Index (YoY) (Jan) (12.30pm)
• Japan - Machinery Orders (YoY) (Dec), Machinery Orders (MoM) (Dec) (10.50am); Machine Tool Orders (YoY) (Jan) (5pm)
• Germany - Imports (MoM) (Dec), Current Account n.s.a. (Dec), Exports (MoM) (Dec), Trade Balance s.a. (Dec) (6pm)
• EU - Nil
• UK - 30-y Bond Auction (n/a)
• Canada - New Housing Price Index (YoY) (Dec), New Housing Price Index (MoM) (Dec) (12.30am)
• US - Continuing Jobless Claims (Jan 27), Initial Jobless Claims (Feb 3) (12.30am); Wholesale Inventories (Dec) (2am); EIA Natural Gas Storage change (Feb 3) (2.30am)

Have a great day's trading.