Gold And Wall Street Slip As Traders Wait For The Inauguration

Originally published by AxiTrader

Quick Recap

Welcome to the start of inauguration day.

The Dow looks set for it’s fifth day of losses as traders remain a little wary in the run up to Donald Trump’s inauguration in the early hours of tomorrow morning Australian time. The S&P 500 and Nasdaq 100 are currently also lower as was much of Europe’s stock markets.

On forex markets the US dollar has caught a lift from Janet Yellen and US data although it is not a universal move with the Aussie a little higher this morning. US 10’s are higher again which is exerting a little pressure on gold while crude oil traders are wondering if lower prices are the way forward.

What You Need To Know

International

• US stocks are down between 0.2% for the Nasdaq and 0.4% for the Dow with the S&P in the middle of that range.

• US bonds are higher again with US 10 year treasury rates rising 4 points to 2.465%.

• Just quickly on Donald Trump’s inauguration. If you remember the moment the Trump sell off morphed into the Trumponomics rally, all the way back in November, it was his acceptance speech which was way more “presidential” than any thought possible. As we’ve got closer to Trump taking office he’s both made clear that the key tenets of his election platform will become policy and he’s also reverted back toward the more belligerent aspects of his character which has seemed very “unpresidential”.

• That’s given traders pause to consider the downside of his policies. It’s partly why the momentum has come out of the stock market rally in the past week or so.

• But there is every chance that in his address – the big set piece of the inauguration – could actually refocus attention on the core tenets of his plan which so enamoured traders with stocks. Naturally that’s just me hypothesising and it could go the other way. But I heard Anthony Scaramucci on Bloomberg Surveillance podcast earlier this week and the man he suggests Donald Trump is is a different one to the one the press, and Trump’s tweets, paint. We may glimpse Scaramucci’s president tomorrow morning.

• Elsewhere US data was pretty solid. The Philly Fed manufacturing index hit a two year high, jobless claims remain low, housing starts were better than expected, but building permits fell. The US economy is doing okay it seems.

• The ECB left policy unchanged and Mario Draghi said rates are going to stay low for a while yet. While the German’s might want a renormalisation of rates its clear Draghi is having none of it yet. He’s focused on a whole Europe recovery. Not just a German one. Draghi said “The recovery of all of the euro zone is in the interests of everybody, including Germany…We have to be patient. As (the) recovery will firm up, real rates will go up." Euro’s performance is interesting in that context.

• BoJ governor Kuroda was in Davos and among other things reiterated that Japanese monetary policy is going to stay loose for some time to come. He noted that “the BOJ's 2 percent price stability goal has not yet been achieved. We will continue with monetary easing to hit the 2 percent target at the earliest possible time”.

• Theresa May also went to Davos and in what was a neat play for the home audience painted a picture of Britain as a global leader. It’s not populist per se. But it was certainly an attempt to tug on the nationalist heart strings. It will be curious to see how that plays in the British press.

• Brazil’s inflation dropped to a 3 year low.

• Today's China data dump including GDP, retail sales, industrial production, and urban investment are going to be important for markets.

Australia

• The ASX 200 looks set to face a little bit of pressure again today after what was a mildly better day yesterday. Healthcare reversed the previous days weakness to fuel the rally while financials bucked the US lead to mostly finish lower. The fact that energy, basic materials, financials, and healthcare are all lower in S&P trade doesn’t augur well for the local market when it kicks off later this morning.

• But the March SPI traders aren’t overly fussed it seems and have the market down 15 points in overnight trade. The SPI is looking like it failed to break back higher.

• Yesterday’s employment data wasn’t overly exciting. Just a few thousand more than market expectations and with the unemployment rate higher largely because the part rate rose a tenth of a point means that the signal about where the economy is remains unclear. That said though it wasn’t a terrible number at 13,500 and it was the third month in a row of jobs growth after the swoon in the August/September period last year.

Forex

• The US dollar has had an interesting 24 hours with the Janet Yellen induced rally seeing the dollar index push higher once again. But it is off the highs in index terms amid what has been a night where the Aussie, GBP, and Kiwi were higher, yen sharply weaker, euro unchanged and the Canadian dollar under pressure again.

• Looking at the dollar index the charts suggest a period of further consolidation and the current level of 101.51 is well clear of the 100 level I pointed out as a big psychological level.

Chart

• It might have been a better night on balance for the US dollar but there was some very different moves within the G10 currencies I talk about here each day. It feels to me that forex rates in 2017 may go the way that stocks have since the Trump rally started. That is while the overall index has risen there has been some very divergent performances in the market as traders pick winners and losers.

• Currently (at 7.35 am AEDT) the Aussie is up 0.69% at 0.7557, the pound is up 0.6% at 1.2330 and Euro is now up by the same amount at 1.0663. The Kiwi has ripped 0.9% higher but the Canadian dollar fell again with USDCAD up 0.35% to 1.3316.

• So it may not be a uniform US dollar strength – or weakness – story which drives foreign exchange rates. Rather individual characteristics of countries and their economies will play a roll and offer some nice moves on the crosses.

• On that theme let’s look at USDJPY. Governor Kuroda’s comments about monetary policy in Japan, see above, certainly helped reinforce that the Yen should be weaker against the US dollar. That’s especially the case coming after Janet Yellen’s comments yesterday about US rates. But equally as I highlighted yesterday post Yellen when USDJPY was sitting at 114.42 “the 4 hour charts don't have any reall resistance for another 100 points”. Which is what we’ve seen as USD/JPY sits at 115.30 this morning, off a high of 115.61. 115 is now support.

Chart

• Perhaps USDJPY could retrace to test that support in the manner that GBPUSD has this week. After breaking the one month downtrend the pound retraced to test the breakout which proved solid in the post Yellen period.

• I did a piece on the Mexican peso yesterday. I must say the idea of buying USDMXN at all time highs and up near 22 fells like a mad trade and certainly one I couldn’t take right now based on my system. But it also feel like Mexico, along with China, is the fulcrum against which the Administration will push and offer its constituency some easy raw meat in the early part of the Trump presidency.

Commodities

• Gold is under a little bit of pressure and at risk of a break down as US bonds rise and the dollar regains its poise. Gold would now need to regain $1208/10 to get back above the very steep January uptrend trend. That may be a tall order based on the past three days trade which showed a big spike, engulfing (roughly) reversal, and then the past 24 hours trade. Time for gold to test lower and find real support it seems.

Chart

• At $52 a barrel crude oil is just clinging to the uptrend stretching back to November’s brief move to $42 a barrel. Of course it’s roll day on Nymex with the front contract maturing today. So we could get some interesting moves in futures.

• But fundamentally the debate is still about OPEC’s production cut and the efficacy of it. Official production daat for Saudi Arabia for November was released showing the Kingdom was pumping as hard as it could. But that’s historic now as the deal has been done. Yet while OPEC’s secretary general Mohanned Barkindo says the primary aim of the deal is to get OPEC inventories back to 5 year averages US crude inventories rose 2.3 million barrel. That was much higher than the 230 thousand barrel draw the market expected IEA data showed overnight.

• So the battle in crude is not yet settled and lower levels could be on the cards if $51.70 breaks for WTI.

• copper was marginally lower yesterday and is at $2.60 a pound in US trade this morning. This is going to be interesting. The charts look a little dangerously poised and Reuters is reporting Chinese speculators have moved on to other markets leaving prices potentially, and dangerously elevated.

Today's key data and events (all times AEDT)

• Australia - Nil
• New Zealand - Building Permits s.a. (MoM) (Nov) (8.45am)
• China - Nil
• Japan - Nil
• Germany - Producer Price Index (MoM) (Dec), Producer Price Index (YoY) (Dec) (6pm)
• EU - Consumer Confidence (Jan) (2am)
• UK - Retail Sales (MoM) (Dec), Retail Sales (YoY) (Dec), Retail Sales ex-Fuel (YoY) (Dec), Retail Sales ex-Fuel (MoM) (Dec) (8.30pm)
• Canada - Retail Sales ex Autos (MoM) (Nov), Retail Sales (MoM) (Nov), Consumer Price Index (MoM) (Dec), Bank of Canada Consumer Price Index Core (MoM) (Dec), Bank of Canada Consumer Price Index Core (YoY) (Dec), Consumer Price Index - Core (MoM) (Dec), Consumer Price Index (YoY) (Dec) (12.30am)
• US - Nil