Originally published by AxiTrader
Quick Recap
The Aussie dollar was hammered back from the supply zone above 77 cents again overnight making it and the Kiwi the worst performers of the big currencies overnight. Stocks in the US and Europe are lower, US and global bonds are up sharply and perhaps questions about monetary policy are being asked.
Crude Oil surged after a massive – hurricane-induced, draw. Gold is off $7 and Copper is looking like it is climbing off the mat.
What You Need To Know
Here’s what I picked up.
International
- The ECB meeting overnight wasn’t exactly the non-event some are characterising it as just because the ECB delivered no new stimulus. We learnt that the bank has a number of committees looking at how to implement its plans and bond buying program more effectively. One thing that’s interesting is one of these initiaitves could be to get rid of the self imposed rule that it can’t buy bonds with yields below the ECB’s own refi rate of 0.4%.
- The bank downgraded its growth outlook by 0.1% to 1.6% for the year but Mario Draghi said “For the time being, the changes (in forecasts) are not substantial (enough) to warrant a decision to act”.
- Did you hear the one about the Fed who warned markets constantly they could act in September but when they did the markets called foul. No? But maybe that is where we’ll end up after the Fed meeting in a couple of week’s.
- I say that because we got further signs from the US labour market last night that things are still tight. Jobless claims printed 259,000 lower than expected while data from DHI Group and University of Chicago economist Steven Davis looking at the JOLTS survey release yesterday showed the number of days to fill a job rose to 28.7 days in July. To put both those numbers in context Dow Jones reported “even at the peak of the last expansion, employers only needed around 23 days to fill jobs.”
- So I’m still in the camp that says the Fed should hike rates in September - out there on my own it seems with even Goldman drop their odds from 55% after the jobs data Friday to just 40% now. But Phil Tetlock will tell you the difference between forecasters and super forecasters is getting these 60:40, 40:60 guess right ;)
- Interestingly in the context of the big rise in US rates, and this piece I wrote yesterday about the end of the 35 year bull market for bonds, is this article from Bloomberg which says Draghi Dialing Down the Drama May Mark Wane of Monetary Activism. There has been much discussion about the efficacy of negative rate policy and QE. I’m not sure I agree with the premise given BoJ Dep Gov Nakaso’s spirited defence of the policy yesterday. What’s important for traders is that there is a shift in sentiment. And if bonds start to rise it will be a game changer for markets.
- Speaking of which bond rates were higher across the board overnight. German 2’s up 5 points to a still sharply negative 0.64%, US 2’s are off 3-4 points while US 10’s are almost 10 points higher than the low of the day – yes 10 points – at 1.61%. German, UK, and other market bonds were also higher in yield.
- Elsewhere the OECD leading indicator is back after a hiatus when the organisation didn’t trust it because of Brexit and it showed outlook for the global economy hasn't changed as a result of the U.K.'s vote to leave the European Union. The print of 99.7, just below the 100 mark, still suggests somewhat sluggish growth however.
Australia
- What an awful day for the local stock market yesterday. It really is the case that the price action is telling a story of underlying structural weakness in the local market. I prefer to look at the SPI, rather than the physical market because the later is open so few hours of any day. So it misses a lot of the overall global price action.
- An analysis of the SPI suggests if it breaks 5325/30 a big fall could ensue and drag the physical market with it. Here’s the chart.
- Anyway looking at the price action today the SPI is only down 11 after yesterday’s 38 point fall which saw the physical S&P/ASX 200 close at 5385. Things could could have been much worse given the market did recover somewhat from its lows in trade. The key level to watch in the physical market is 5350/55.
- Today we see Chinese CPI and PPI data which are the key releases in out time zone along with local home loan data.
Forex
- Europe wanted to take the Aussie dollar higher overnight after the slightly better than expected Chinese trade data and it traded up to 0.7730 at one point but the supply zone, and the sellers who lurk above 77 cents, proved a bridge too far once again. So this morning the AUD/USD has been hammered back 90 points to 7641 as I write.
- That weakness was in part a response to the improved US dollar which found it’s feet and bounced off support over the past two nights. But the Aussie, and Kiwi, weakness was in no small part idiosyncratic to the antipodean pair which are amongst the weakest currencies overnight.
- Here’s the US dollar Index chart from my Reuters Eikon terminal
- Elsewhere the USD/JPY rallied hard over the past day after BoJ deputy governor Nakaso gave a very spirited defence of the bank’s policies in Japan and seemed to suggest that further measures, and policy coordination with the government and its stimulus package, are on the table. Many said yesterday that Nakaso offered nothing fresh but to my read of his speech he really believes the BoJ’s policies are working and that, with more work to be done, suggest the “comprehensive” review could actually deliver some sort of fresh stimulus at this month’s meeting.
- Now to the Euro and it was a bit of a wild ride after the ECB announcement but with the US dollar having the upper hand Euro is back at 1.1248, itself having rejected resistance.
Commodities
- Crude Oil roared another 4% overnight with WTI at $47.43 and Brent Oil at $49.78. The story was another big draw, this time 14.5 million barrels. That was enough to get the buyers buying and build on the previous day’s rally. But most pundits are saying the big drawdown has been a result of a drop in imports as aresult of the recent hurricane that drifted through the gulf. The implication is that we’ll see a big build next week.
- More noises of a possible deal to be done by OPEC with the Saudis, Algerian oil minister and the head of OPEC having a pre-meeting meeting in Paris tonight.
- Either way, prices are high – but not yet overbought.
- Gold is down $7 dollars as it backs perfectly away from technical resistance and Copper is showing every sign it is about to surge higher. It’s at $2.0950 and building.
Today's key data and events (all times AEDT)
- Australia - Home Loans (Jul), Investment Lending for Homes (Jul) (11.30am); CFTC AUD NC net positions (5.30am)
- New Zealand - Electronic Card Retail Sales (MoM) (Aug), Electronic Card Retail Sales (YoY) (Aug) (8.45am)
- China - Producer Price Index (YoY) (Aug), Consumer Price Index (YoY) (Aug), Consumer Price Index (MoM) (Aug) (11.30am)
- Japan - CFTC JPY NC net positions (5.30am)
- Germany - Wholesale Price Index (YoY) (Aug) (n/a); Wholesale Price Index (MoM) (Aug), Imports (MoM) (Jul), Current Account n.s.a. (Jul), Trade Balance s.a. (Jul), Exports (MoM) (Jul) (4pm)
- EU - CFTC EUR NC net positions (5.30am)
- UK - Consumer Inflation Expectations, Trade Balance; non-EU (Jul), Total Trade Balance (Jul), Goods Trade Balance (Jul) (6.30pm); 10-y Bond Auction (n/a)
- Canada - Housing Starts s.a (YoY) (Aug) (10.55pm); Net Change in Employment (Aug), Participation rate (Aug), Unemployment Rate (Aug) (11.30pm)
- US - Wholesale Inventories (Jul) 912am); CFTC Gold NC net positions, CFTC USD NC net positions, CFTC Oil NC net positions (5.30am)
Have a great day's trading
Greg McKenna
Chief Market Strategist AxiTrader