Originally published by AxiTrader
Market Summary (8 am Wednesday September 12)
Markets are waiting on the announcement of the next tranche of US tariffs on Chinese goods. But it was the Chinese that rattled markets a little last night with the announcement that they were seeking WTO approval to impose US$7 billion in sanctions on US goods over non-compliance with a dispute initiated by China in 2013.
It’s a kind of arcane plan that could take years to work through. But it certainly caught the eye of market watchers. Not so much US stock traders though who were more interested in the recovery in tech and the big surge in oil prices which helped drive the energy sector.
So at the close the S&P 500 is up 0.37% to 2,888, the Dow has risen 0.44% to 25,971 and the Nasdaq 100 is up 0.81% to 7508. Within that 0.81% index move however are some very big individual gains for stocks like Apple (NASDAQ:AAPL) and Netflix (NASDAQ:NFLX)…among others. Europe's stocks, for the most part, missed the memo with the DAX down 0.13%, the the FTSE off 0.8%, Milan down 0.31% but in Paris the CAC was 0.3% higher.
As I guessed in my Australia Today piece yesterday, it was turnaround Tuesday for the ASX with the first rally in a week seeing the 200 index up 38 points, 0.6%, to 6,179. SPI traders are a little more circumspect though and have knocked 12 points off overnight. Certainly the miners were mixed globally last night but energy might do okay today.
Indeed on commodity markets, the rally in crude has been spectacular. But in many ways it’s the move in copper which is most remarkable with a massive liquidation of around $300 million in positions (121 million pounds) in a three minute window. knocking the good doctor for six. But it’s back at $2.60 this morning down just 0.34%. That’s solid. Back to oil then and the Hurricane(s) bearing down on the US and apparently renewed concerns about supply disruptions saw prices spike close to 3% and Brent now sits at $79.50 while WTI is at $69.25 up close to 3%. Gold is still at $1195 while Bitcoin is down 1% at $6,240.
To forex then and the US dollar was getting pummelled at one point with euro up at 1.1643 and the pound up at 1.3086 before a little flash crash in Sterling saw it back under 1.30 very quickly before recovering. UK employment and labour data last night was fairly positive for the economy as wages growth rose to 2.9% and as Mark Carney agreed to stay on. As it stands this morning euro is at 1.1595 – flat day on day – while Sterling is flat as well at 1.3026. USD/JPY is higher though with stocks and yield differentials at 111.56, up 0.42%.
For the commodity bloc the big news this morning is the breaking news NAFTA might be getting closer to a deal. Apparently the Canadians are prepared to discuss dairy. The result is a rally in the Canadian dollar, which has seen USD/CAD fall from a high of 1.3174 to 1.3072 as I write for a Canadian dollar gain of 0.7%. The Aussie, which had been knocked from its highs as euro pulled back is a little higher and just in the black now at 0.7116 for a 0.05% gain. The kiwi is at 0.6518, down 0.1%.
Now for the potentially huge story of the week and weeks ahead. US rates are climbing again – slowly, but rising. The 2-year Treasury is at 2.75% and the 10-year Treasury is at 2.979%. Last nights NFIB and JOLTS data reinforced the tight labout market and with it Fed tightening in 2018 and 2019.
Looking ahead the Westpac Consumer Sentiment data today will be important. Where yesterday’s NAB business survey showed a dip in confidence but resilient underpinnings consumer confidence could print poorly given all the headwinds. We’ll see. Otherwise it’s a fairly quiet 24 hours of data. The EIA inventory data tonight is going to be important – especially after the massive draw (8.6 million barrels) just announced for API. We also have PPI in the US, mortgage applications and speeches from the Fed’s Bullard and Brainard. Before that the Euro Area has industrial production.
Macro Stuff that affects everyone and everything - either today or eventually
International
- There is a chance that the NAFTA deal, including Canada, may get done. President Trump made a comment saying that “trade talks going well. Canada wants to make a deal. We then heard that the Canadians were ready to include Dairy in the deal which really seemed to ignite the rally in the CAD and drive USDCAD lower. It also helped lift sentiment which was dented by the China WTO news last night. But, as I wrote earlier this week the US Agriculture Secretary is going after the Canadian subsidies of diary which he believes unfairly penalise US farmers in global markets. So a deal may be imminent but CBC in Canada reports BAML economists reckon Canada’s potential concessions won’t be enough. We’ll see.
- And I say we’ll see because Bob Woodward’s book has done real damage to President Trump’s approval ratings and that in turn is hurting the GOP’s prospects in the upcoming mid-terms Greg Valliere, Horizon Investments chief market strategist, wrote in his note overnight. Greg argues getting a deal with Canada is one of things the President can do to improve his, and the GOPs stocks.
- On trade, if you are interested in what China is doing at the WTO, here’s the link. I’m more interested in what they were trying to do or to signal to the US. Were they flying a balloon to see if stocks collapsed? Where they trying to impact the USD? I’m not sure, but there’s a reason behind this move – I just haven’t figured it out yet. Though we know China will respond when/if President Trump slaps the next tranche of tariffs on Chinese exports to the US. Interesting though that Canada is trying to reform the WTO and at the same time itself taking China to the organisation for dumping pulp – a complaint China says it regrets.
- And on the trade war, former PBOC governor Zhou Xiaochaun says that it will increase the appeal of the renminbi for trade and investment.
- Bridgewater Founder Ray Dalio had some advice for the Fed, in an overnight interview with CNBC. He said the US central bank shouldn’t raise rates faster than the market anticipates because the US is in the 7th inning of the current economic cycle. Glass half full folks, that means there is a year or two to go. But he has a warning that investors should be “more defensive” on stocks and that the “upside looks limited” because a lot of cash on the sidelines has been put to work and the benefits of the corporate tax cuts are "behind us,". The video is embedded in the link and it’s worth a watch to get Dalio’s understanding of where we are in the cycle and the analog with the 1934-40 period.
- Have commodities bottomed? It’s an interesting question and one posed by Brown Brothers Harriman’s excellent head of currency strategy Marc Chandler. If they have then this has big implications. We’ll see how it evolves, I’ll keep you updated.
- There is an alternative to Theresa May’s Chequers plan for Brexit floating around which was written by Euroskeptic Tories which includes a different approach to the Irish border issue it seems. That ight be something that needs to be dusted off given it seems to be a material sticking point. ON that note the Irish PM said he hopes for a deal soon.
- And speaking of the UK, BoE governor Mark Carney has agreed to stay on till 2020 to help smooth the Brexit transition. And quickly on last night acceleration in wages to 2.9%. That was in keeping with the BoE’s forecasts so it doesn’t push the bank to be more hawkish. But it will reinforce to the policy makers on the MPC that things are moving as they expect. So an orderly Brexit, a deal, would suggest the path of rates remains higher as Carney has told us.
- A judge in the US has ruled that a promoter of ICO’s who has been charged with fraud can be charged under securities laws. Here comes more regulation folks.
Have a great day's trading.