Originally published by AxiTrader
Market Summary
Stocks in the US and Europe are lower this morning after a combination of a Metro attack in Russia, concerns over the meeting between the Chinese and US presidents late this week, and more political ructions in the US seemed to sap a little resolve from the market and led to a mild risk-off tone.
The Dow Jones Industrial Average is down 0.1%, the S&P 500 is off 0.16% and Nasdaq 100 has closed down 0.29%, while the FTSE 100, DAX, and CAC 40 fell between 0.45% and 0.70%. Worth noting though is US stocks are well off their lows and the DAX made a new all time high before reversing lower.
More importantly – and maybe a sign of a reduction in underlying faith in the Trump bull market right now is that US bonds rallied last night. 2's are at 1.24% while the 10-year treasury is just a little off the night’s low sitting at 1.34% this morning.
On forex markets the Aussie dollar, assailed by weak retail sales, is under 76 cents. sterling was hit by a weaker than expected MArkit PMI survey, Euro is fairly calm, and the yen has caught a bid on the mild risk off tone is back below 111.
On commodity markets the fact that gold rallied back to $1252 ties it all up as a bit of a risk off night. Copper fell 1.74%, and oil dropped on Liyban production news. WTI is still above $50 though.
What You Need To Know (with a little more detail and a few charts)
- S&P 500 -4 (0.16%) 2358 (7.00 am Sydney)
- Dow Jones Industrial Average -13 (0.06%) 20650
- Nasdaq 100 -17 (0.29%) 5,894
- SPI 200 -11 (0.19%) 5,848
- AUD/USD 0.7604 -0.31%
- Gold $1252 +0.35%
- WTI Oil $50.30 -0.59%
International
- Markets are at an interesting juncture at the moment. Caught between what has been a real pickup in data over the past 4 months and some fading notions about the effectiveness of Donald Trump and his ability to implement his agenda – particularly for tax and infrastructure spending. That comes in the wake of the failure to get the bill to repeal Obamacare through the House. Forget it would have been DOA in the Senate it’s the inability to get a plank of Republican policy through which has troubled markets and sapped equity strength and given bonds a bid.
- Some say that it’s a good thing and the Administration can now focus on Tax. But that idea and the stock trade with it seemed to fade quickly. So where we are is a little confused right now. Using the S&P 500 as an example we can see the Trumponomics uptrend has broken, prices are now in a little downtrend. The question for traders, and markets more broadly is what comes next? Here’s the S&P chart.
- Bonds seem less confused though as they rally across the globe right now. As you can see below the rally is broad based.
- Here’s something I missed and which could end up being an important factor in the Brexit negotiations. It seems that for some reason the EU has tied the fate of Gibraltar – the rocky peninsula contested by Spain and Britain for the best part of 300 years – to the overall Brexit negotiations. CNBC reported that former conservative leader Michael Howard said Theresa May could repeat a Falklands episode over the territory. Gibraltar’s chief minister Fabian Picardo said “nobody wants to talk about going to war” but he added “the way that Spain has behaved is really quite abominable”. Theresa may laughed of Howard’s comment by the way.
- It’s a side show issue in many ways to the main game of the EU/British negotiations for Brexit. But while you can negotiate terms for many things my sense is Gibraltar would be off the table. It could render the whole process null and void. And it increases the chance of a hard Brexit. I find it amazing at this early stage the EU could be hobbling the process. But I guess they don’t want anyone else to think about leaving. Anyway we’ll see what happens with the UK economy.
- So it’s against this backdrop that it’s worth noting something that popped up after my note yesterday. French presidential candidate Marine Le Pen told a rally over the weekend that the euro is like a knife in France’s ribs. “We are at the mercy of a currency adapted to Germany and not to our economy. The euro is mostly a knife stuck in our ribs to make us go where others want to go”. And echoing many of the concerns that appeared to drive the Brexit vote Le Pen said “We do not want France to be open to all commercial and human flows, without protection and borders”. The questions for markets is whether the rhetoric can bridge the gap most pundits say exists between the support for Marine Le Pen in the first round of the electoral process and what is then expected to be a decisive defeat in the second round.
- The Bank of Canada’s latest survey sees improving business conditions over the next 12 months with increased hiring and investment intentions.
- South Africa and its Rand are having a tough time financially at the moment. Last week the nation lost its finance minister which put the rand under pressure and then overnight S&P downgraded the country. That knocked the rand for six with USD/ZAR gaining 2.3% as rand sellers came from everywhere.
- On the data front I was pretty happy with the manufacturing PMI’s I saw released yesterday. Yes the UK undershot with a 54.2 print on a 55.1 expectation. Yes the US Markit PMI was a smidge lower than expected – but that was more than balanced out by a rise in the ISM version of the data to 57.2, So in balance the overall data was solid which allowed the Markit JP Morgan Global manufacturing PMI hold steady at February’s 69 month high of 53. Global manufacturing PMI has now been above the 50 demarcation line between expansion and contraction for more than a year – no wonder commodities bounced.
- The question for traders – and germane to my thesis that if data stops beating expectations stocks could get undermined – is whether staying solid is enough. Bonds suggest it may not be right now.
- Automakers reports in the US missed to the downside giving some credence to the bond bulls.
Australia
- The ASX found some buyers after the fall to 5841 yesterday to end the day up 8 points at 5872. The market is still cheering the banks ability to increase customer prices outside of any RBA rate rises. But it continues to be clear that APRA wants to restrict the flow of demand for loans. SO I guess increases prices on the back book makes sense. Whether the banks can continue to power the index in the face of mild downward pressure in te4h US and other markets today and the fall in copper – and potentially iron ore when China comes back online today – is yet to be seen.
- SPI traders have a fairly benign outlook however with the SPI down just 5 points from where we were yesterday afternoon.
- But where the local index is relative to the US could be a challenge if the US doesn’t start moving higher. Having again made up the underperformance – yes linear – the ASX likely needs an offshore impetus to charge sustainably higher.
- So the RBA meets today and is widely expected to leave rates on hold. I’m not expecting them to cut either. But I think what we saw in retail sales yesterday (-0.1%) after last month’s +0.4% is indicative of the genuine struggle that the domestic economy, and consumers, are having right now. MY read last month was that the statement and minutes could have accompanied an easing. So I think the door is more ajar than many anticipate which could further undermine the Aussie dollar which is under a little pressure having broken the 2017 uptrend in the past 24 hours.
- I’ll talk more about this in my Aussie specific piece later this morning.
Forex
- Nothing like disappointing data to move a market. That’s something both the Aussie and pound have felt over the past 24 hours with retail sales and the manufacturing PMI undershooting expectations. In the case of the UK it was still a solid print of 54.2 while in Oz retail sales unexpectedly fell. Yet the pound has lost half a per cent versus the US to 1.2483 and the Aussie only 0.33% as it just clambered back over 76 cents. I’ll discuss the Aussie in greater detail a little later. But it’s worth noting this is data and outlook specific news as the Kiwi and many non-rand EM currencies are stronger this morning.
- Euro is up a smidge at 1.0669 and the yen has firmly rejected the bounce back inside the previous range. It’s something I talk about yesterday in my video noting that while the daily was a little confused the weekly charts suggested lower levels. Here’s the daily anyway.
Commodities
- Crude oil dipped back below the trendline which stretches back to the 2016 lows overnight after traders apparently worried about the restart of Libya’s largest oil field and the continued increase in the Baker Hughes rig count in the US. So this morning we have WTI crude at $50.24, down 0.71%, and Brent at $53.12 down around the same amount.
- What’s interesting about that price action is the global PMI data, and Chinese data Friday were pretty positive suggesting the recovery is still taking hold and thus demand should remain solidish. But the reason I talk about expectations and the Citibank economic surprise index all the time is it’s not where the data prints. It’s where the data prints relative to expectations.
- That’s an aside for now but something to keep in mind when thinking about any market – that is where is data relative to expectations not necessarily just is the data strong or weak.
- Gold benefitted from the little uptick in uncertainty but copper had a big delayed reaction to the resumption in supply I talked about yesterday.
- When I was recording my vide yesterday I said the charts suggest a move to $2.55 perhaps even $2.45.
Have a great day's trading.