China Data Worried Traders But Stocks And Forex Recovered From Their Low

Originally published by AxiTrader

Quick Recap

Just when it looked like we were about to see further breakouts in the US dollar, US bonds, and stocks traders have taken these markets back from the brink to reverse back inside recent ranges.

That’s interesting and suggests traders are still just as cautious on the downside as they are on the upside.

What You Need To Know

Here’s what I picked up.

International

• US jobless claims were down again overnight which is another indication that the jobs market remains healthy in the US. But apart from that there hasn’t been a lot of macro news to drive markets save for the Chinese trade data yesterday. That has weighed on sentiment but prices are back from their pessimistic brink with the S&P 500 in particular up more than 20 points from the low of the night.

• With 50 minutes to trade the S&P 500 is down 0.16% at 2135, the Dow Jones Industrial Average is off just 0.07% and the Nasdaq 100 is off 0.26%.

• There is an interesting stoush going on in the UK at the moment which goes to the heart of the impact of Brexit on inflation and consumers. Tesco (LON:TSCO) and Unilever (LON:ULVR) are in a face off of increases in prices that Unilever is trying to force on the supermarket chain for headline favourites like Marmite (Yuk). Tesco is resisting the increased charges but Unilever says this is just how business works – EUR/GBP has risen meaning it should cost the UK more. Tesco should resist as its customer advocate – their incomes haven’t gone up and perhaps Unilever might have hedged this risk properly to mitigate the blowout. Or perhaps both firms could take a reduced margin and insulate the cost rise to maintain sales.

• Whatever happens it’s important for inflation in the UK which looks like it is headed sharply higher in the initial instance. But if inflation does rise without the increase in income consumers are likely to ration purchases – which is where the economic slowdown really begins.

• Speaking of Brexit keep you eye on this court case which is trying to force parliament to vote on Brexit claiming the referendum was only advisory in nature. If they win GBP/USD could rally hard as trader expect a soft or no Brexit. While a loss retains the current status quo.

• The Thai King has passed away

Australia

• Huge news today before the open with big falls for BHP Billiton Ltd (AX:BHP) and Rio Tinto Ltd (AX:RIO) on the London market after Citibank downgraded the pair to “sell”. Yes folks sell. Citi thinks the rally in both stocks and the commodity prices that underpin them won’t be sustained “as demand cools and supply responds”. Both stocks fell more than 4%.

• But at 5.06am the SPI 200 is actually up 5 points at 5420 well of the 5385 low as the S&P 500 recovered off its 2114 low.

• Naturally the weakness in our market yesterday was pretty much all about China and the much weaker than expected trade data and the big fall in exports that we saw of 10% year on year. That weakness hit the Australian dollar and the S&P/ASX 200 which fell 39 points yesterday to 5435.

• But even with the bounce in the S&P 500 from its lows the fact that it is down, as was Europe, there is every chance that the ASX200 eases lower across the day and into week’s end.

• Today we have the release of the RBA’s financial stability review which may be of interest for those interested in banking and housing.

Forex

• The US dollar is off around 0.4% day on day but that belies the real weakness from the highs in Asian trade which took it to the highest levels since March. Over the past 24 hours we’ve seen the Euro under 1.10, USD/JPY above 1.04, the Aussie dollar back near 75 cents and the pound stabilise and rally enough to look like it is going to generate a but signal for my trading system.

• After trading up to 98.13 the US Dollar Index is back at 97.58 this morning – not quite an outside day, but almost. Here’s the chart from my Reuters Eikon.

• Given China was the catalyst for some of the moves in global markets over the past 24 hours its worth keeping an eye on the CNY/USD which hit another 6 year low against the greenback yesterday. Offshore Yuan traded to a high of 6.7428 and it’s at 6.7328 now while the onshore rate sits around 6.7248 this morning.

• What’s interesting I guess is that just like the Chinese devalued the Yuan after it was confirmed it would be going into the IMF’s SDR basket they have returned from Golden week and let the Yuan slide almost immediately following the announcement by the IMF of the Yuan’s weighting in the SDR basket recently. Regardless of the fact that the economy can do with a little help and in many ways the USD/CNY move reflects moves elsewhere in the Yuan trade basket it also suggests premeditation on behalf of the PBOC which has forex traders wary of further weakness.

• In USD/CNH terms, offshore, the key level traders will be watching is the August 2015 devaluation high around 6.76.

• Back to the majors now and USD/JPY has backed off the highs and is at 103.57 this morning, the Euro is at 1.1051, USD/CAD is at 1.3189, even the NZD/USD is up day on day at 0.7095 for a gain of 0.5%. And even the Aussie is now showing a day on day gain at 0.7574 well off the overnight lows of 0.7507. Nothing like $4 billion plus of bond bids from offshore investors to brink you back from the brink.

Commodities

• Chinese data really hurt the price of Copper in the past 24 hours with sentiment souring and the price falling 2.4% to $2.11 a pound. That’s lower than the $2.13 a pound I’d been looking for.$2.0760 is now important support.

• Oil is higher this morning even though there was a big build in US inventories. It seems draws in other products took the focus of traders more than balancing that out. Crude Oil is up 0.58% to $50.47 with Brent Oil up a similar amount to $52.07. That means my systems short is a little out of the money for the moment. What’s interesting about the price action is that traders found an excuse to buy – not sell – which could be instructive about prices going forward in the week’s ahead. Time will tell.

• Gold is up at $1259 and looks like it is trying to build a base for a $15-20 rally.

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

• Australia - Financial Stability Review (11.30am)
• New Zealand - Nil
• China - Producer Price Index (YoY) (Sep), Consumer Price Index (MoM) (Sep), Consumer Price Index (YoY) (Sep) (12.30pm)
• Japan - Domestic Corporate Goods Price Index (MoM) (Sep), Domestic Corporate Goods Price Index (YoY) (Sep), Foreign investment in Japan stocks (Oct 7), Foreign bond investment (Oct 7) (10.50am)
• Germany - Nil
• EU - Trade Balance n.s.a. (Aug), Trade Balance s.a. (Aug) (8pm)
• UK - BOE Credit Conditions Survey (Q3) (7.30pm)
• Canada - Nil
• US - Retail Sales ex Autos (MoM) (Sep), Retail Sales (MoM) (Sep), Retail Sales control group (Sep), Producer Price Index (MoM) (Sep), Producer Price Index (YoY) (Sep), Producer Price Index ex Food & Energy (MoM) (Sep), Producer Price Index ex Food & Energy (YoY) (Sep), Federal Reserve Bank of Boston President Rosengren Speech (11.30pm); Reuters/Michigan Consumer Sentiment Index (Oct), Business Inventories (Aug) (1am); Fed's Yellen Speech (3am); Baker Hughes US Oil Rig Count (4am)

Have a great day's trading