Originally published by AxiTrader
Quick Recap
A little US dollar weakness towards week’s end, coupled with a small rally in US bond rates, and a stalling in the rate of appreciation in US stocks heralded the return of two-way flow in markets last week. That’s a good sign because it means investors are now actually thinking about valuation not simply chasing prices.
What You Need To Know
International
- US non-farm payrolls have been characterised as both strong and disappointing depending on which articles you read. The actual print was 178,000 which was essentially in line with expectations for a rise of 180,000. The unemployment rate fell to a fresh post GFC low of 4.6%. Hourly earnings fell 0.1% which is where some of the characterisation of weakness comes from. But overall the data shows that the US economy’s jobs market remains tight and a Fed hike in December is a lock.
- To a certain extent that could be a weight on stocks this week as traders start to wonder about the impact of Trump plus a relatively strong economy have on the Fed and more importantly expectations about the number of rate rises in 2017.
- In the end though bond markets rallied a little with the US 10 year finishing the week at 2.39% - 5 points below the high of the week. Stocks were flat with marginal gains for the Russell 200, S&P 500, and the Nasdaq 100 while the Dow fell a smidge. Week on week though stocks were lower reflecting perhaps some concerns about the Fed, or maybe just that the outlook is still uncertain for stocks Trump has yet to actually take office and there has already been a lot of pull forward of expectations.
- The far right candidate in the Austrian election over the weekend has lost in a victory for a centrist Europe.
- Greece has been on the backburner lately – but smouldering nonetheless. The Greeks are exploiting – or trying to exploited – Brexit and fractured politics to get a better deal. Reuters reports that a government spokesman said Sunday that political uncertainty in Europe has created fresh momentum for a "comprehensive and permanent" solution to the Greek debt crisis before the year ends. Dimitris Tzanakopoulos told Athens 9,84 radio. "The general uncertainty which prevails in Europe - which is both political and financial - creates ... a momentum for a comprehensive and permanent solution for the Greek issue."
- Nice try, maybe not, says German finance minister Wolfgang Schaeuble who said over the weekend that Greece must implement further reforms not look for debt forgiveness.
- Now we wait for the results of the Italian referendum.
- Pivoting back toward Asia now and it’s worth noting that Chinese president Xi was already saying he was watching US politics closely before the Trump/Taiwan phone call over the weekend. Vice-president elect Pence has characterised the conversation between Donald Trump and the Taiwanese president as a courtesy call but the Chinese have already lodged a protest while pundits are worried about a change in the US one-China policy.
- But Donald Trump neatly highlighted the hypocrisy of global diplomacy on his Twitter account. Neatly put. But that’s not very dimplomatic. This is important for markets though because in 2016 politics has increasingly played a key role in driving forex, bond, and stock markets in a way we havn’t seen before. A Trump presidency offers more of the same it seems.
Australia
- 1.02%. That’s how much the ASX 200 fell on Friday as traders again rejected the move above 5500 and the trendline that sits in the 5515/22 region. It’s a strong technical signal the market is not yet ready to push higher. But it is also a reflection that the ASX200 is not going to go it alone if the US market is pulling back as it did toward week’s end.
- This week is going to be huge for the ASX and local traders across all markets. Given we get both an RBA meeting, but probably more importantly Q3 GDP. While the RBA is expected to be a non-event Q3 GDP is anything but.
- While there is still more partials to be added to the calculation before the release of GDP Wednesday pundits are currently expecting a flat or negative Q3 GDP release. That is a big challenge to the RBA’s more positive outlook on the economy that they espoused no less than 4 times in November. To a certain extent that means evn though the RBA governors statement Tuesday precedes the release of GDP (which is another stupid epic fail by the ABS which always does this) it will be interesting to see if governor Lowe has anything to say on the matter of growth.
Forex
- The US dollar is stronger across the board (except the Yen) in very early Asian trade Monday. It could be a reaction to the Taiwan phone call, China reaction, or it could just be early morning, thin market shenanigans.
- But I’ve tried to call – or should I say price action suggested – a top in the US dollar last week. And even though we have a big Fed meeting next week, and an ECB meeting this week – both of which should reinforce the hegemony of the US dollar in global forex markets – there are signs a deeper move lower in the US dollar is at hand.
- Looking at the US Dollar Index a break below 100.45/50 would signal such a move which would also signal the release of pressure across Asia, and other forex markets.
- That outlook is mirrored in USDJPY (113.41) and to a lesser extent Euro 1.0640. Looking at the charts there is room for a reversal in both these currencies
- It’s still all about Brexit, hard or soft, when it comes to GBPUSD. The pound shot 1.1% higher on the back of some excitement after news broke that the Conservatives had lost a London by-election reducing Teresa May’s majority when it comes to the vote in the Commons on Brexit. To that end the high court decision on the Tories appeal on its recent ruling is out this week.
- It’s more than just Brexit though for the pound. Prices have coiled and a garden variety 38.2% retracement of the entire Brexit high/low range targets 1.3040/50.
- Looking at the Aussie dollar and it’s clear that the going is tough in the current environment but some support remains under 74 cents. If we do see a negative print from GDP on Wednesday then the AUDUSD is likely to come under pressure. But it all depends on where the Aussie heads, and what the US dollar does, in the next couple of days
Commodities
- A weaker US dollar and some thoughts the OPEC deal might actually achieve its goals drove crude oil higher. $52.00/25 is the big level to watch this week. A break will get oil traders fired up.
- Gold is languishing at $1176 still at the moment. But if the Taiwan/Trump phone call suggests anything it is that there will be many opportunities for gold to come into its own again in the next 4 years. That’s not much of a trading opinion – in fact it’s an awful one – but it suggests gold will continue to find an audience.
- Copper and base metals more broadly are still elevated. Last week’s price action suggests a period of range trading or a pullback is needed. But it’s funny how the narrative around copper and other metals has now changed. Copper eneded the week at $2.615
Today's key data and events (all times AEDT)
- Australia - AiG Performance of Services Index (Oct) 99.30am); ANZ Commodity Price (Nov), TD Securities Inflation (YoY) (Nov), TD Securities Inflation (MoM) (Nov) (11am); Company Gross Operating Profits (QoQ) (Q3), ANZ Job Advertisements (Nov) (11.30am)
- New Zealand - Nil
- China - Caixin China Services PMI (Nov) (12.45pm)
- Japan - Consumer Confidence Index (Nov) (4pm)
- Germany - Markit PMI Composite (Nov), Markit Services PMI (Nov) (7.55pm)
- EU - Markit Services PMI (Nov), Markit PMI Composite (Nov) (8pm); Sentix Investor Confidence (Dec) (8.30pm); Retail Sales (YoY) (Oct), Retail Sales (MoM) (Oct) (9pm)
- UK - Markit Services PMI (Nov) (8.30pm)
- Canada - Nil
- US - Markit Services PMI (Nov), Markit PMI Composite (Nov) (1.45am); Labor Market Conditions Index (Nov), ISM Non-Manufacturing PMI (Nov) (2am); 3-Month Bill Auction, 6-Month Bill Auction (3.30am)
Have a great day's trading