Originally published by AxiTrader
Quick Recap
European stocks were down a little as yields across the region rose and concerns about the periphery intensified. That trend to higher rates continued in the US which helped the US dollar at the margin. But it hasn’t really hurt US stocks as traders and investors seem to have a renewed focus on the reality that for all his belligerence president Trump does seem likely to institute his key tax and economic plans.
So for now we are getting an extension of the Trumponomics rally in stocks. Company reports certainly haven’t hurt.
On forex markets the big losers are the yen, which continues to be volatile, and the Mexican peso which is caught in the maelstrom of tweets and arguments between the presidents of the two nations as Trump goads his southern neighbour over the building, and payment of the wall.
Elsewhere gold has collapsed further, oil bounced off trendline support again, and the Aussie dollar has held in better than you might expect.
Now for US fourth quarter GDP tonight.
What You Need To Know
International
- The big news overnight is the cancellation of the meeting between the US and Mexican president’s overnight. That the Mexican president canceled it after being goaded by Trump on Twitter that he cancel if Mexico won’t pay for the wall won’t help Enrico Pena Nieto’s standing at home. But the Mexican president himself responded via Twitter. What a world we live in now.
- Speaking to Republican lawmakers in Philadelphia overnight president Trump reiterated his plans and what he has done so far. He’s genuine about trying to bring trade, jobs, and economic activity back to the United States. He also talked about the bad deal he sees Nafta as for the US – especially for the US.
- But the interesting thing about the impact of these types of spats from POTUS – along with his Executive Orders signed since the inauguration - is that it is convincing traders and investors that Donald Trump’s regulatory reforms, and infrastructure spending plans are coming down the pipe. So the Trumponomics rally continues for the moment.
- So the impact is that after breaking 20,000 Wednesday night the Dow is still holding above that level. It’s at 20100. The S&P 500 is down 2 points and the Nasdaq 100 is largely unchanged.
- Bonds in Europe though in many ways are more interesting. After the Italian court ruling yesterday on former prime minister Matteo Renzi’s reforms which suggests another election this year in Italy Italian bonds rose 13 points. Portuguese bonds were also higher. These moves helped knock the euro a little lower.
- And one of the hawks on the ECB governing council Sabine Lautenschlaeger said the ECB could soon start talking about the end to stimulus. She said “All preconditions for a stable rise in inflation exist. I am thus optimistic that we can soon turn to the question of an exit” she said. Mario Draghi would not be amused.
- And of course we get the release of the first estimate of US GDP growth for the fourth quarter of 2016 tonight. The Atlanta Fed’s GDPNow estimate has been upgraded to 2.9% and early this morning Goldman Sachs (NYSE:GS) announced that it had materially upgraded its expectation from 2.2% to 2.6% annualised for the quarter.
- Data out of the UK last night showed that GDP in the fourth quarter of 2016 grew at a faster pace than expected – defying again the Brexit doomsayer crowd. The rise of 0.6% qoq shows the economy – and consumers – continue to be resilient in the face of continued uncertainty around the timing and impact of Brexit
Australia
- A solid day Wednesday before the Australia Day holiday should be built on today given the rally in the US on Wednesday night and the fact that it has held overnight. Forget Dow Jones Industrial Average 20000, it’s the S&P 500 up near 2300 which is the big news. Certainly the S&P hasn’t exactly roared on with it overnight but at 2296 as I write its still very strong.
- And that’s the key to the next leg of the Australian market’s move. While our market, our economy, and our companies are derivatives of global growth, and the moves in the US, they should still benefit from the overall strong tone in global markets which has the MSCI measure of global stocks up near its record high once again.
- Equally I’ve been saying for a little while the Aussie market needed a rally in the US to lift the local market sustainably. We’ve seen that now so it’s up to the local bulls.
- 5685 is the key short term level I’m watching on the SPI while the physical 200 index has overhead resistance at 5710.
Forex
- The US dollar has recovered again with the US Dollar Index sitting at 100.40 this morning. So far you would have to say that the US dollar has found a base above the 99.50 region we’ve been highlighting as support recently. Strong data for GDP tonight – or not as may be the case – is the next be driver of US dollar, and as a result, moves in other currencies as well.
- Speaking of support – the AUDUSD has so far found support in the 0.7510/20 region over the past couple of days. It’s not strong by any stretch of the imagination at 0.7546 here this morning. But buyers have clearly not abandoned the Aussie yet. But they look they are going to be tested in trading today given the Aussie has come under pressure in the past couple of hours.
- Sterling moved into the 1.26/27 zone I was talking about earlier this week on Wednesday night. But it’s just under 1.26 this morning sitting at 1.2598. GBPUSD is a little overstretched short term after its solid rally which might explain why it has stalled after such a positive GDP release.
- Naturally there was a rally in USDMXN as the peso came under pressure after the spat between Mexico and the US intensified. But the peso is mounting a fightback and is now only off 0.692% now – in line with the euro’s move – sitting at 21.19.
Commodities
- We now have a really good sense of where the big shale oil supply response to higher prices will come. That’s after the earnings report from oilfield service provider Baker Hughes overnight. The company said crude oil prices would need to increase by around 15% to encourage producers to boost drilling outside the US. That suggest a Brent price of around $65 a barrel. IN the US though we are much closer to the price level that will drive a supply response with Baker Hughes saying that prices in the mid-to-high $50 would be high enough to induce more investment.
- Overnight the price of crude rallied strongly in the US as prices continue to respect the trendline we have been looking at recently. Brent is up 1.9% to $56.13 while Nymex crude is also up 1.9% to $53.74.
- Interesting news on the fundamental front for gold overnight with Reuters reporting “Buying of jewellery, coins and bars, plus official sector and industrial demand, fell to 3,349 tonnes last year from 4,184 tonnes in 2015, the analysts said, the lowest in seven years. That helped lift the net surplus in the gold market to 1,176 tonnes, up from just 220 tonnes in 2015 and the biggest physical surplus this century.”
- Copper is off a little. Folks are talking about supply again it seems.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Nil
- China - Chinese New Year Eve (24h)
- Japan - Tokyo CPI ex Fresh Food (YoY) (Jan), Tokyo CPI ex Food, Energy (YoY) (Jan), Tokyo Consumer Price Index (YoY) (Jan), National CPI Ex-Fresh Food (YoY) (Dec), National Consumer Price Index (YoY) (Dec), National CPI Ex Food, Energy (YoY) (Dec), Jobs/applicants ratio (Dec), Unemployment Rate (Dec), Overall Household Spending (YoY) (Dec) (10.30am)
- Germany - Nil
- EU - Private loans (YoY) (Dec), M3 Money Supply (3m) (Dec), M3 Money Supply (YoY) (Dec) (8pm)
- UK - Nationwide Housing Prices s.a (MoM) (Jan), Nationwide Housing Prices n.s.a (YoY) (Jan) (6pm)
- Canada - Nil
- US - Gross Domestic Product Price Index (Q4), Gross Domestic Product Annualized (Q4), Personal Consumption Expenditures Prices (QoQ) (Q4), Core Personal Consumption Expenditures (QoQ) (Q4), Durable Goods Orders ex Transportation (Dec), Durable Goods Orders (Dec) (12.30am); Michigan Consumer Sentiment Index (Jan) (2am); Baker Hughes US Oil Rig Count (5am)
Have a great day's trading.