Originally published by AxiTrader
Market Summary (7.46 am Wednesday, June 6)
Just like Poseidon back in 1969, and countless times since then, sometimes when you put a number on something the hype or fear gets washed away. In no small part I think it’s why Amazon (NASDAQ:AMZN) might be better off pursuing its current policy than trying to milk its businesses and become insanely profitable.
And it looks like the Bloomberg story that the US has asked OPEC for a 1 million bpd increase in production might have been the number that gave the bulls some succor and the bears pause. Sure WTI and Brent made new lows for this run of $64.20 and $73.79 respectively but they are sharply higher since then at $65.53 and $74.99 as I write recording, alternatively, a gain of 1.2% and a loss of 0.4% on the day.
It could have been much worse though – it was for a short time.
That bounce back in oil likely saved stocks from a poor outcome with mild losses on the S&P 500 reversed and it closed largely unchanged at 2,748 up just 2 points. Anyone else feel like it’s looking a bit tenuous given this little range break didn’t kick on? The Dow is essentially flat at 23,799, while the Nasdaq 100 was up again as tech remains bid. It closed at 7,166 up 0.32%.
Here at home SPI traders are punting on a better day ahead with the June contract up 14 points. That makes sense given the action in base metals, oil’s recovery, and the Aussie dollar's dip.
On forex markets the US dollar continues to put pressure on emerging markets and to a certain extent that strength is keeping a lid on the major’s rally. Euro appears to have failed again (weak PMI data?) making a high of 1.1731 and it’s back at 1.1713 now up 0.11%. Sterling though had a cracker after stronger than expected PMI helped the bulls hand – it’s at 1.3402, up 0.7%. USD/JPY tried all day in Asia yesterday to break 110 but its back at 109.80 this morning.
Of the commodity bloc the Aussie has fared worst with a 0.39% even though base metals are looking good, copper fairly roared, and today’s Q1 GDP looks like it might print 1%+. The battler is at 0.761, down 0.48%. The Canadian dollar lost ground as well with USD/CAD up 0.3% to 1.2966 while the kiwi is largely unchanged at 0.7026.
To commodities now and you have to wonder what the heck is up with the Aussie dollar when copper is 2.5% to $3.20 a pound, and when the entire base metals complex – save for tin – is higher. Gold even caught a tiny bid last night and is at $1296 and off course I covered oil’s moves above. NB though WTI is a little higher after the API data showed a decent draw.
On bond markets Italy came under a little selling pressure once more though it’s worth noting the new government did win a confidence vote on the floor of parliament. In the US rates have stayed reasonably well bid and are a little lower with the 2's at 2.4958 and the 10's at 2.92%.
Looking forward then today is a big day for Australian markets with the release of the first quarter’s GDP data. It’s expected to be a good print but I’ll be looking closely at consumers and the savings rate. Otherwise it’s fairly quiet although US and Canadian trade along with US productivity data will be interesting.
Here's What I Picked Up (with a little more detail and a few charts)
International
- News is breaking this morning that the Chinese appear to have offered to buy an additional $70 billion in US ag and oil products. The President is expected to meet with his advisers on whether to move forward with this proposal or not. It has the ring of truth around it given the Chinese said the other day that all bets are off if the US imposes the tariffs. They’ve thus offered both the carrot and the stick.
- Speaking of trade, Mexico has imposed tariffs on pork, bourbon, and other products sourced from Trumpland. Separately the Canadians have said NAFTA is a trilateral deal and they are working on that basis. This appears to be in response to suggestions the President wants bilateral agreements on his North and South borders. Interesting if the Canadians hang tough because I’d bet they’d get much more favourable terms then the US's southern neighbours.
- Bundesbank President Jens Weidmann said overnight that the Italian turmoil shows the EU is not “crisis proof”. Well Doh, as Homer would say.
Australia
- So the market expects a strong GDP print today. But that’s backward looking isn’t it? That’s not to say strength isn’t to be celebrated should the 1%, even 0.8%, growth rate eventuates. But it’s what happens next that’s important. And on that front the fact the services PMI was through the roof yesterday, that employment prospects still look strong are good signs. But – as a behavioural economics and finance guy – I have to wonder when I read what the RBA is saying in print whether they are more worried about the future than they let on.
- To that end it’s worth noting again they made a ridiculous comment about being a source of confidence at the end of the minutes to last months board meeting and then yesterday the RBA seems to have scored another own goal in saying credit is tightening but rates are lower. As I tweeted soon after, I might be splitting hairs but it doesn’t matter what the rate is if you can’t get the loan. And as Stephen Koukoulas and Pete Wargent tweeted a little later, rates are actually DRIFTING A LITTLE HIGHER. Two apparent own goals from the RBA in just two weeks. I hope the Socceroos do a better job in Russia.
- And if you want a primer on today’s GDP outturn look no further than David Scutts excellent 10 second guide you can find here at Business Insider.
- To the markets then and the SPI 200 is up this morning as the combination of factors that hurt sentiment on the local market yesterday unwound overnight. The gain of 14 points suggests a better day ahead. But the reality is we look to be mapping out a range after last week’s volatility and a break of either 6,038 or 5,946 is necessary to get things moving in an excited fashion.
- The Australian dollar failed. That’s the best I can say for it after all the positive factors it needed to punch up and through the previous night’s high and the 61.8% retracement level of the fall from just above 78 cents converged but the AUD/USD was unable to capitalise and rally. So this morning despite the real chance of a solid 0.8-1.0% print for Q1 GDP, despite a surge in copper, despite the benign US dollar backdrop, and despite the continuation of a solid business backdrop here in Australia the Aussie is lower at 0.7614.
- Perhaps, like me, traders are simply hopping for a rally so they can sell again. Certainly the setup for the US dollar just gets better as the rest of the world struggles economically while the United States economy seems to be surging still. Time will tell I guess but the Aussie needs to get back above 0.7665 or it will start to look weak again. Even then it needs to clear 77 cents for the outlook to change in any material way given the downtrend still seems intact.
Forex
- If there has been a theme in my writing over the course of the past few months it has been the strength of the US economy versus the rest of the world and the associated impact that would have on the US dollar. I’ve been singing from that hymn sheets since the US Dollar Index was below 90 and the euro was up near 1.25. The data flow has gone that way and continues to go that way. Last night the Markit services and composite PMI’s for the EU were out and Markit tweeted overnight that, “#Eurozone economic growth at one-and-a-half year low in May. Composite Output Index and Services Business Activity Index down to 54.1 and 53.8 respectively”. Not good. On the other hand US PMI’s and the Jolts data last night were strong as my old colleague Richard Franulovich from Westpac New York tweeted.
- So I’m still bullish the US dollar. Indeed what the Markit version of the PMI’s showed was that costs for US businesses are rising at the fastest pace in 7 years. That’s important because it suggests that the Fed will need to hike again this month, then September, and perhaps December as well. As a counterpoint Janus Henderson’s Bill Gross says June will be it. I’d happily bet against that at the moment – and indeed I am.
- Anyway – so what we are seeing at present is a US dollar consolidation. They come in two forms – time and price. Sometimes a combination which is where we seem to be at the moment. In DXY terms the 92.82 level is the usual, garden variety, 38.2% retracement level of the recent rally with a similar level being 1.1859 in EUR/USD. Clearly we haven’t seen that yet. And though it remains a chance as the market works off and through the US dollar momentum if/when we see the recent range top (DXY) and bottom (euro, pound etc) break I’ll be running with those moves once again in a similar fashion with what we saw in oil to the recent highs.
- Something different for the chart of the day today – GBP/USD. As you can see it too is having a counter trend rally. That orange line you can see is the third touch of a trendline going back to the post-Brexit lows. Overall the short time bias on the dailies is higher but there is still plenty of resistance in the 1.3485/1.3620 region which is where I would expect any rally to pull up based on the way I see the set up right now.
Commodities
- Subsequent articles to the Bloomberg story that the White House had requested a 1 million increase in production from OPEC seemed to back away from that exact figure. But it is clear that like the Indians the US has reacted to the sharp increase in crude and the impact that potentially has on consumers through the pump ans spoken to the cartel about those concerns. That they are listening is a result of a recognition that further prices rises may have resulted in a more aggressive response from President Trump and the Administration as well as the reality the Russians seem keen to get off the bus and start pumping once again.
- But the rally overnight, or at least the bounce off the lows, comes as a result of technical factors and – as I suggested in the introduction – the reality that 1 million bpd gives oil traders a number against which to push, to assess the impact on the supply demand imbalance, and a number for OPEC members to potentially push back against themselves given the Saudis have the relationship with Washington not individual OPEC members.
- Worth noting that last night Russian energy minister Novak said OPEC and non-OPEC countries should looking into the possible easing of oil output restrictions depending on the demand environment.
- To the WTI chart then and $66.00/20 looks important as it represents the old uptrend channel. Often a break is retested as traders check to see if it is real or false. Should that level hold then it is likely the WTI bears will be emboldened.
Have a great day's trading.