Originally published by AxiTrader
Welcome to my daily Markets Musings.
Short and hopefully sweet today as I’ve been up all night in a world of back pain – from where I know not
Greg
Market Summary (6.43 am)
Stocks are down and markets across the board have reacted to the news yesterday during Asian trade of the resignation of White House economic adviser Gary Cohn. That suggested both that President Trump’s tariff plans are more than just posturing, and equally that the economic nationalist triumvirate of Wilbur Ross, Peter Navarro, and lets face it, President Trump himself, are indeed in the ascendancy.
And it was against this backdrop that last night the US Commerce Department – yes Wilbur Ross’ one – released data showing the US trade deficit in January hit a nine-year high of $56.6 billion. It was an increase of 5% and higher than the markets forecast of $55.1 billion.
So even though there is talk of carve outs and the tariffs are part of a negotiation strategy with NAFTA don’t expect the tariff idea and spectre of a tit-for-tat tariffs globally to recede just yet.
The washup this morning is that the S&P 500 is off about 0.42%. That’s a lot less than where prices were at their weakest in Asia yesterday. So things haven’t really kicked off as yet – earnings over tariffs is the current debate it seems. The Dow is off 0.77% and the Nasdaq is 0.17% lower.
Strangely Europe didn’t care about the funk in Asia with the DAX up 1.1%. The FTSE MIB was up 1.2% but the CAC was more circumspect with a 0.34% gain will the FTSE in London was up just 0.16%. Maybe Donald Tusk’s clear signal that the UK government is still dreaming on Brexit desires might have been a handbrake.
Locally after a tough day yesterday where the S&P/ASX 200 gave up 1% to close at 5,902 SPI traders have only managed to add about 14 points at the moment.
Interestingly forex markets have been far less interesting than you might think. Certainly USDJPY fell out of bed when the Cohn news was announced but USD/JPY has bounced from the Asia lows and is sitting at 105.90 down just 0.2%. The euro is largely unchanged at 1.2408, Sterling likewise at 1.3891, while the Aussie dollar recovered from weaker than expected GDP and the market funk to be down just 0.23% at 0.7809 - go figure.
The Canadian dollar however has lost 0.7% with USD/CAD up at 1.2959 after the Bank of Canada’s dovish hold of rates citing an “important and growing source of uncertainty” emanating from trade policy. That is, NAFTA renegotiations may fail and tariffs might bite
Notwithstanding the fall in stocks it’s clear markets are not yet overly fussed about a trade war. You can see that in the fact US 10's are still at 2.87%, that the 2's are sitting at 2.25% and you can see it in the yen and Aussie dollar rates. You can also see it in the price of gold which has been belted $13 off its highs from yesterday morning and is back at $1326 this morning.
Oil is sharply lower though as the combination of a build in inventories, though smaller than forecast, and a little bit of risk off sentiment combined to push WTI 2.27% lower while Brent fell 2.2% to sit at $61.17 and $64.39 respectively.
On the day today, we get the release of both Australian and Chinese trade data at 11.30am and 2 pm AEDT respectively. Tonight the ECB is expected to leave policy unchanged but Mario Draghi’s press conference and statement will be widely parsed for clues on the path of QE. Traders will also be watching what he says – if anything – about the impact of tariffs.
The Fed's Beige Book was released while I was writing this - I don't feel like it added anything to what we already know about the US economy. But it did show prices rising.
Here's What I Picked Up (with a little more detail and a few charts)
International
- Earlier this week I opened my daily video playing Tom Petty’s “I won’t back down” as a nod to my thoughts on tariffs and the President’s plans. And subsequently, the Cohn resignation, the cancellation of the meeting with anti-tariff business leaders Thursday, and the clear ascension of the Ross-Navarro compact as key drivers of the President’s plans to address the US trade deficit has only reinforced my thoughts that Tom Petty should be the theme of the moment.
- And nowhere is that better illustrated than with the latest tweets by President Trump a few hours ago. They speak for themselves. But initially, he tweeted, “from Bush 1 to present, our Country has lost more than 55,000 factories, 6,000,000 manufacturing jobs and accumulated Trade Deficits of more than 12 Trillion Dollars. Last year we had a Trade Deficit of almost 800 Billion Dollars. Bad Policies & Leadership. Must WIN again! #MAGA”. And then followed up with two tweets clearly signaling that he is going after China next.
- Canada and Mexico may eventually get carve-outs if NAFTA can be renegotiated but there is plenty of time and water to flow under the bridge first. In the meantime what the President announces – tonight according to Axios – will set the agenda and market action in the run to non-farms tomorrow night. And then who knows. Key here though is China and Europe have both signaled they’d prefer not to get involved in a trade war – something Wilbur Ross said overnight the US is not trying to start – but they are ready to retaliate. The EU even highlighted a shopping list of items again overnight including things like peanut butter. Clearly, they were ready for this.
- Brexit! The UK simply can’t have its cake and eat it too. That’s the clear message from the EU with Donald Tusk, EC president, outlining in a 5-page document the bloc's response and negotiating stance to the current UK demands. Of note, particularly in context of UK Chancellor of the Exchequer Phil Hammonds claim the EU needs the City of London, Tusk’s outline offer no olive branch to UK financial firms. Apparently, Goldman Sachs (NYSE:GS) has put some staff on notice of a move to Frankfurt “within weeks” Reuters reports.
- The Atlanta Fed has dropped its expectation for growth in Q1 to 2.8% from 3.1% overnight. It says that’s because, “The nowcasts of first-quarter real consumer spending growth and first-quarter real nonresidential equipment investment growth declined from 2.9 percent and 10.1 percent, respectively, to 2.6 percent and 6.9 percent, respectively, after the light vehicle sales release from the U.S. Bureau of Economic Analysis on March 2. The nowcast of the contribution of net exports to first-quarter real GDP growth declined from -0.43 percentage points to -0.59 percentage points after this morning's international trade release from the US Census Bureau”.
- How’s this for a headline from Reuters? Strong euro zone economy confirmed at end of 2017. By strong they mean 0.6% for Q4. But the rate for 2017 of 2.7% is not to shabby really. Especially against expectations a year ago. Data has been slipping lately though relative to expectations and the EU CESI is down at -8. The US is still up at +40. Australia is -7.9 and China is -1.6. Canada is -42!
Australia
- And speaking of growth yesterday’s release of Q4 GDP was disappointing insofar as we saw a print of just 0.4%. More disappointing than that was the fact that it is population growth which is fuelling the growth in the economy. That means Australians overall standard of living is declining. The best way for me to explain it is the way I did on Twitter yesterday when I retweeted David Scutt’s article highlighting this reality. In that tweet I said, “Good Chart! The economic pie is getting bigger - but the quality of the filling is getting worse. But HH Consumption & low savings rate suggest HH's are still positive because a bigger pie also means more jobs - even with low wages growth. At least that's my take”. Here’s Scutty’s chart:
- In terms of the market yesterday was a poor day for stocks. The fall of 1% was a big one but was in keeping with the bearish sentiment we saw on Asia and the sense of dread about what bigger markets might do in the wake of the Cohn resignation. Naturally the SPI is off its low of the past 24 hours given US markets are – currently – down only a fraction of where they were at their worst in Asia yesterday. The Buy the dip crowd just won’t be cowed it seems in the US.
- But nevertheless, the last 4 days price action on the SPI shows we have a market here in Australia that is not sure where to go. Four long or longish tailed daily candles in a row speak to that. Shorter-term though there is a gap that needs to be filled between 5,925 and 5,940. How and if the market can get up and through that region – or not as may be the case – along with US price action is the key for US here in Australia today.
Oil
- I’m surprised at the size of the overnight falls in oil markets particularly given the slightly smaller than expected build in inventories and the continued OPEC jawboning we are seeing at the CERAWeek conference. But perhaps like me oil traders see this for what it is – OPEC is talking their book. But the reality is that Brent, and WTI, are really just mapping out a little wedge pattern looking for the next shoe to drop. I’ll be going with the break and adding if price then exceeds either recent highs or lows – depending on the direction of the break. Here’s Brent:
Gold
- Yesterday I had a long term look at gold. It’s fallen completely out of bed since then so I look a bit like a feather duster not a rooster this morning. But the outlook remains intact unless the recent lows give way. You can read it here.
That’s it today folks – apologies I’m in agony standing here at my desk
Have a great day's trading.