Originally published by AxiTrader
Market Summary
US stocks and bonds are higher this morning and the US dollar caught a bid. Stocks are bouncing back as the weekend gave buyers time to reflect on techs little funk last week.
There back and the Nasdaq 100 is higher as result with the big cap tech leading the way again. It’s up 1.42% to 6239 while the Dow Jones Industrial Average rallied 0.68% to finish at 21,528 after touching a new record during the day. The S&P 500 was up solidly as well with a 0.83% gain to 2453. RECORD HIGHS!
In currency and bond markets Us rates and the dollar are higher for the same reason. The lack of data gave traders more time to focus on the reiteration by NY Fed president Bill Dudley that the Fed will keep raising rates.
As a result US 2's are at while the 10's are a little higher and the curve has steepened a tiny bit. The US dollar is higher in index terms and back at last week's highs.
Elsewhere on Forex markets the higher US dollar has knocked everything lower and the Aussie is back under 76 cents. Just.
Crude is down again along with gold as a stronger US dollar weighs. It's surprising that crude and gold isn't reacting to heightened tensions in the Gulf. But I guess they are just tensions now. Worth noting though the Saudis claim they intercepted three Iranian revolutionary guards in their territory.
The wash up for the local market is that after a solid 31 point rise, and a close above 5,800 yesterday on the ASX 200 SPI traders have marked prices up another 5 points overnight. He said unemployment at 4.3% and inflation around 1.5%
Today we get a speech from Charles Evans of the Fed, the ABS house price data, and of course the RBA minutes. Tonight the heads of the SNB and BoC are both talking – something for currency traders to watch – while Fed vice-chair Stan Fischer is also speaking.
Otherwise data is light.
Here's What I Picked Up - in a little more detail
International
- While the data is a drag on the US dollar last night’s comments from New York Fed president Dudley restating the Fed’s belief that wages growth will return and that the path to higher rates will continue was the big story in an otherwise quiet night for big news events.
- Dudley said he was confident that inflation will bounce back as wages lift. He said unemployment at 4.3% and inflation around 1.5% was “actually a pretty good place to be” adding “We are pretty close to full employment… Inflation is a little lower than what we would like, but we think that if the labor market continues to tighten, wages will gradually pick up and with that, inflation will gradually get back to 2 percent”.
- Dudley is often perceived as a dove at the Fed. So this is an important reaffirmation of Fed intent. But as I highlighted last week the reports from American business owners – in various surveys - is that it’s getting hard to get the staff they need for the jobs they have. That is something the Fed knows and is watching – and it’s likely to eventually see wages lift across the economy.
- And what’s germane to the discussion at, and about, the Fed is that Dudley said the US economic expansion is far from over. He said he is “very confident" the expansion “has quite a long ways to go.” No wonder stocks weren’t worried.
- And to be honest bond traders aren’t so worried either with the 10 year year still below 2.20% and the 2’s at the top of the years range. The bond spread ticked up a couple of ticks.
- Bonds, and the dollar, will get a lift if and when the data starts to back up the Fed’s assertions. At the moment however the Citibank Economic surprise index – the best daily measurement of data flow for the US relative to expectations – is languishing at -77.5.
- Politics in the US is still a massive handbrake on growth certainly not the markets at the moment. But one thing I wanted to highlight were comments from Greg Valliere Horizon Investments chief global strategist in his morning note from Washington. Valiiere said on all this Trump-Russia stuff:
“THE CONFIDENCE FACTOR: Last Friday's drop in the University of Michigan consumer confidence reading was partly attributed to the dysfunction in Washington, Michigan officials said. Consumers – and the markets – may begin to perceive a climate in which neither health reform nor tax cuts can get enacted. At the least, Trump's agenda has stalled.
WE'RE NOT EXAGGERATING THE SERIOUSNESS of this crisis, which has deepened in recent days. We understand that the markets have enjoyed good economic fundamentals, but they could become simply fair fundamentals if this crisis doesn't subside. Mueller isn't going away, and six more months of subpoenas and depositions will take a toll. Mike Pence, meanwhile, waits in the wings.”
- And we can’t forget the politics of Brexit and its impact on the UK economy. Talks started well last night with both sides saying they have mapped out a path for the talks to take.
- And don’t forget politics in the Middle East. The Qatari’s say they won’t negotiate until the blockade is lifted, Iranian is firing missiles at Syria, and the Saudis claim they captured three Iranian revolutionary guards last week in their waters. The Iranians refute the claim naturally. Worth watching though.
- Chinese house price growth continues to moderate data released yesterday showed. But any negative they may have had for global markets was mitigated by the rise in Chinese commodity futures after regulators moved to relax trading restrictions. Here’s a link to the FT article – but I wonder what they are up to. That the relaxation on prohibitions on wealth management products investing in commodity assets seems to run counter to the actions taken to rein in speculative excess in the economy.
Australia
- It was a good day yesterday for the local index given the pressure brought to bear on the retail sector after investors fret over what exactly Amazon’s takeover of Whole Foods in the US might mean when they come to Australia. But financials came to the rescue with more solid gains for the banks which contributed around half of the 31 point, 0.54%, rise in the S&P/ASX 200 index. That’s left the market with its first close above 5,800 since May 16.
- The question I guess for today is whether the Moody’s downgrade of the big banks and the concerns articulated by the ratings agency about the outlook for the economy and housing weigh on the market or specific sectors. We’ll see, but it’s not exactly fresh news.
- There is overhead trendline resistance at 5,825 on the ASX200 with last week’s high at 5,836.40 the key to whether or not this rally can break, and reach for the years highs near 5950.
- In SPI terms the resistance level is the 5,795/5,800 region
- The RBA minutes should be supportive when they are released this morning. They are likely to reflect the RBA’s positive assessment of the economic outlook.
- And that was something that was reinforced by yesterday’s release of new motor vehicle sales. The data showed a new record for sales which is not an indicator of household stress – the very opposite in fact. Something I tweeted yesterday.
Forex
- Bill Dudley’s comments, and a lack of weak data, helped the US dollar rally overnight. In US Dollar Index terms it’s up at 97.533 which is in the initial resistance zone it has to churn through before it can make a run at overhead resistance at 98.50. The technical are turning for the dollar and a break of 97.80 is the first step on the ladder higher.
- Looking at the Euro, the corollary of the dollar’s strength is a fall of 0.45% to 1.1149. Some commentary says that both euro and GBP are weaker as the Brexit talks start. That may be true, but my sense is only at the margin. This is about central bank policy divergence and economic outlook. When the data eventually turns in the US – assuming the Fed is right – we are going to see a very strong reaction in forex markets.
- In the meantime charts are my guide and on that front EUR/USD is testing support right here and now. But the 1.1100/10 (the red line) is the level I’m watching closely.
- GBP is offered a little at 1.2736, the yen is lower again losing 0.6% with USD/JPY rising to 111.54. This pair should be substantially higher. The Canadian dollar is stalling as crude slips again – It’s at 1.3213.
- Bringing it back home the result of the resurgence in the US dollar is a AUD/USD rate back at 0.7595. The overnight high of 0.7629 is again near, but below last week’s peak which reinforces the 0.7635/40 region as the range top. For the Aussie, it’s going to be about the US dollar mostly, but the RBA minutes (assuming they are upbeat) should help it on the day.
Commodities
- Crude is lower again. WTI and Brent have lost more than 1% with WTI at $44.10 and Brent at $46.87. It’s roll week so we could see some messy trading as traders roll to the new contract or close out existing positions.
- For the moment WTI remains close to the bottom of the recent range while Brent remains a little more stable but has a clear level at $46.60 that if broken could usher in a move toward $43.44.
- Gold is lower at $1,243 this morning. Below another support level and looking friendless as stocks rally and the US dollar gets a little stronger. The chances are growing of a round trip back to the $1,215/20 region.
- Copper joined the China induced commodity rally and is up around 1% this morning.
Have a great day's trading.