Dow Up 230 And Gold Hammered As Risk Is On Again

Originally published by AxiTrader

Market Summary

Stocks in the US are surging again in the perfect wave of strong corporate results, decent data, and continued relief that the French presidential election won't be derailing markets.

That's seen the Nasdaq trade above 6,000 for the first time, kicked the Dow Jones Industrial Average up more than 200 points - back around 21,000, and released the S&P 500 to head black toward its record high of 2400.

Europe lagged with the DAX up 0.1%, the CAC up 0.17%, and the FTSE 0.15% higher.

But it sets up a strong day for local stocks on the ASX today. Monday's underperformance was interesting with the rally faltering by the close. SPI traders put on 25 points this morning. So today should bring a better day and maybe the highest prices in a few years.

On Forex markets the Euro continues to surge with hints the ECB may change tack combining with the French election positivity. USD/JPY also continues to rally and the pound remains strong. The Aussie dollar is utterly underperforming everything and the Candian dollar dipped after the US imposed tariffs on Canadian lumber and president Trump took aim at Canada's dairy industry.

On commodity markets the risk rally hammered gold, lifted copper and base metals and oil finally steadied as traders await API inventory data.

Today we get the release of Australia's first quarter inflation data. The market is expecting headline inflation to head back into the RBA's 2-3% inflation band with a 0.6% rise during Q1.

What You Need To Know (with a little more detail and a few charts)

• S&P 500 +40 (1.70%) 2388 (7.17 Sydney - change since Monday 7.22am)
• Dow +449 (2.2%) 20547
• Nasdaq +115 (1.94%) 6,025
• SPI 200 +61 (1.04%) 5,899
• AUD/USD 0.7532 10.47%
• Gold $1263 -1.6%
• WTI Oil $49.36 -0.5%

International

• A day before we get the outline of president Trump’s tax plan – he promised it Wednesday – it’s worth noting that again he and his administration are once again following through on the commitments they made in the election process. That it is Canada the president and commerce secretary Wilbur Ross have decided to hit is somewhat surprising. But it’s another sign that adjusting for the initial setbacks the president has faced for his agenda it’s clear he is still pushing forward with his plans.

• That suggests – and we’ll know this week – that tax and infrastructure are likely to be big pushes for Trump. I think that is a big part of this rally in stocks this week which has seen the Dow up 500 points and the S&P 500 closing in on its record high.

• Equally though, US data was a little better and helped the Citibank economic surprise index rise from 2.8 last Friday to 7.3 this morning. New home sales hit an eight-month high, house prices were up 5.9% year on year, but consumer confidence fell from a 16 month high with a print of 120.3 in April from 124.9 in March which was the highest level since 2000. Apple Inc (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) surged and earnings reports from Caterpillar Inc (NYSE:CAT) and McDonalds Corp BDR (SA:MCDC34) added to the positive tone.

• Naturally, the corollary of these moves in the data and stocks has been the lift in US and global bond rates. US 10’s are now back at 2.33% with the 2’s at 1.27%. In Europe, we’ve seen a huge contraction in French and German bond spreads which have moved back under 50 points in the 10 years even as overall rates have moved a little higher. German 10’s are up at 0.375%.

Elsewhere

• The latest polls in France confirm again that Emmanuel Macron should trounce newly independent Marine Le Pen. Opinionlab has the combatants at 61% for Macron and 39% for Le Pen. The election is on May 7 and that is one heck of a gap to pull back. So markets will remain ebullient unless the gap closes to 5 percentage points or so.
  

• And a big part of that has been the impact on forex volatility and bond spreads. The one-month EUR/USD implied vol has fallen back to 8.4% from 12%+ before Sunday’s first round election.

• While president Trump’s administration is bashing Canada over trade the WTO has given Mexico a small stick to belt the Americans. The United States’ southern neighbour won a dispute over trade in Tuna and can now impose sanctions worth $163.23 million against the US.

• Turkish president Tayyip Erdogan won’t have surprised anyone with his comments overnight to Reuters that Turkey would reconsider its position on joining the European Union if it was kept waiting much longer and if the current hostile mentality of some member states persists. You’d have to ask if Europe actually wants Turkey in now? Anyway this is likely important for those who trade the Lira.

Australia

• You would have to say that Monday’s rally on the ASX was a little disappointing really. But since then the Dow has risen roughly 450 points and the S&P 500 is back near 2390. So if the bulls are ever going to take charge of trade today is the day.

• That’s especially the case given the sectoral strength in the S&P 500 last night and given the particular strength of basic materials, energy, and financials which have a heavy weight in the local index. Base metals and iron ore markets have certainly done their part also.

• Can we trade back to 5950? Can we eclipse it? Technically this rally has legs so a run at the high and move above it looks probable.

• Today we get the release of Australia’s Q1 CPI data which is expected to drag inflation back inside the RBA’s 2-3% target band. The market is expecting 0.6% and 2.2% respectively for the quarterly and year on year headline prints. The less volatile trimmed mean is expected to print 0.5% and 1.8%.

• This data is important for the outlook for rates and the dollar because it will inform thinking about the RBA and possible policy responses.

Forex

• The Euro is on a tear again this morning (+0.6%, 1.0932) and almost certainly on its way to test overhead resistance at 1.1000/20. The move is more than just French election euphoria though as Reuters reported overnight that “Three sources on and close to the bank's Governing Council told Reuters that with the threat of a run-off between two eurosceptic candidates in France averted, and with the economy on its best run in years, there may be tweaks to the ECB's opening statement in June.” What’s interesting about that is we have an ECB meeting this week. So I’m wondering what Draghi and his colleagues may say this week.

• Here’s the chart with overhead resistance:

• USD/JPY is on a tear as well up at 111.12. In what has been a big outside day the Yen has been absolutely poll axed. 111.60 is the old range bottom so that is the level to watch. GBP is higher as well at 1.2830 while the Australian dollar is utterly underperforming.

• The AUD/USD performance is awful as I wrote Monday. Why it has been left behind when the risk rally and bounce in metals and iron ore is an interesting question. I’ll write more on this a little later but for now at 0.7536 the Aussie has lost 0.4%. But it’s not alone…the kiwi has been hammered and the Canadian dollar is under pressure as well.

• Interestingly while Asia EM is up a little today Latam EM currencies are under pressure – just like the commodity bloc.

Commodities

• Gold has done what it must when risk goes on and fortune favours the brave not the cautious. It’s down $12 overnight to $1263. That’s $21 below Friday’s close and a dollar below the technical target I highlighted last week and then again Monday. It still looks like it has further downside.

• Interesting price action in oil as it found a base even though Russia said it could hit its highest production number in 30 years if the production cut deal isn’t extended and API inventory data showed a build of 890,000 barrels.

• After 6 days of falls, an up day is hardly surprising and WTI is trading at $49.61 up 0.77% while Brent is at $52.10 up 0.99%

• Copper is up more than 3 cents a pound for a gain of 1.27% to $2.586 as base metals and iron ore rally in this risk on environment.

Have a great day's trading.