Originally published by AxiTrader
Market Summary
Month end. Good bye August, and good riddance?
After an interesting month of increased market volatility, heightened geopolitical tensions, a monstrous storm in Texas and Louisiana (not to mention some of the weather events in other regions recently) and rising uncertainty about the political situation in the US and around the debt ceiling, stocks closed out the month with a rally.
The S&P 500 was up 0.57% - 14 points - to 2,471. The Nasdaq 100 rose 0.95% and the Dow Jones Industrial Average was 0.25% higher at 21,948. You just can't keep these US stocks down.
In Europe there were rallies across the board while here at home after yesterday's month end rally on the S&P/ASX 200 which lifted prices back to 5,714, SPI traders are betting that it will be another good day on the local bourse with price up 8 points from yesterday's close.
On forex markets, it was a game in two halves.
Some real US dollar strength dissipated around lunchtime in London such that the gains were in most case completely given back. Euro is back above 1.19 as a result. The pound is above 1.29, USD/JPY at 110 and the Aussie dollar traded through a 0.7870/0.7950 range. It's at 0.7945 now.
On commodity markets gold bounced solidly from the $1300 region and is back at $1321. US telling Russia to shut some US envoys is just another wrinkle in fracturing global geopolitics. Oil is higher as Hurricane Harvey's wake tightens supply in other markets around the world and the US was forced to release some of its SPR. Copper is copper. It's higher again.
But US 10-year bonds are sitting at - languishing I might say - 2.12%. What's with that?
On the day virtually nought else matters besides the release tonight of US non-farms. Consensus is for another print of around 180,000. But I'd not be surprised if the market quietly thinks a bigger outturn is coming.
Here's What I Picked Up (with a little more detail and a few charts)
International
- The aftermath of Hurricane Harvey continues to impact markets with the US Energy Agency announcing that it was releasing 1 million barrels from the US' vast strategic petroleum reserve to cover the disruption to supply that has seen pipelines and refineries shut at the same time operating refineries have run out of crude to process.
- Harvey, or at least the bill to pay for the damage, is likewise having an impact on the US debt ceiling debate and negotiations. That's something US Treasury Secretary Mnuchin acknowledged overnight when he noted the money for the cleanup has to be found.
- The US has retaliated to the Russians gutting their own operations in Russia by ordering it to close its San Francisco consulate and two other annexes in the US. They haven't actually expelled anyone but it is another sign of the growing tensions between the two nations.
- US Treasury secretary Steve Mnuchin said overnight that the Administration has a very detailed tax plan that should be passed this year. No wonder stocks have suddenly found a bid. It's the very point I was making about the risks of all the negativity around President Trump in the press in yesterday's note. If tax cuts get done, or the market sniffs a chance they will get done, it will positively impact stocks and the US dollar.
- Consumer spending data in the US last night wasn't terrible with a print of 0.3% in July. But that was weaker than the 0.4% the market had forecast. In terms of inflation data showed the core PCE price index rose 1.4% from a year ago. Income was up 0.4% and wages were 0.5% higher in July.
- Is it any wonder the Canadian dollar reversed course so sharply last night - or that the Aussie dollar remains well bid. I say that after data showed that Canadian GDP shot the lights out with annualised growth of 4.5% in Q2. That was much better than the 3.7% the market forecast and the best outcome since Q3 2011. The BoC is back in play. Maybe at the September meeting some say.
- Yesterday's official Chinese PMI's had something for the bulls and the bears. Manufacturing PMI for August was stronger than expected at 51.7 against July's 51.4. Services, non-manufacturing as it's called, dipped to 53.4 from 54.5 in July.
Australia
- Yesterday's data was solid. No doubt about it. Both the 0.8% increase in Capex in Q2 over Q1 and the roughly $102 billion third estimates easily beat expectations. The third estimate is still down on last year. But there is a clear broaden in Capex plans which speaks to the outlook for the economy in the quarters ahead.
- It's a strong sign that the NAB's business survey is giving us the right signals.
- Looking at the ASX then we had a good day yesterday with a 45 point rally lifting the S&P/ASX 200 to 5.714. SPI traders are mildly positive that we might have another positive day with prices about 5 points higher than yesterday afternoon.
- Whether it's the physical ASX or the SPI all that does is bring us back toward the middle of this trading range. But given we had a couple of tests of the lows of that range this week - even a slight move below recent lows for the physical market - it is reasonable to suggest that momentum might be there for a further run higher today.
Forex
US Treasury Secretary Steve Mnuchin had some interesting things to say about the US dollar overnight. Interesting insofar as he intimated something we all know the Administration probably doesn't mind - a weak or weaker US dollar. Via the folks over at ForexLive I saw that Mnuchin told CNBC that "obviously, the short-term issues of the dollar have both positive and negative impacts for different parts of the economy...obviously, as it relates to trade, having a weaker dollar is somewhat better for us."
He did add the usual strong dollar mantra when he said "I do think over long periods of time, the dollar's strength is an indication of the reserve currency and the confidence people have in the US economy".
And that folks is exactly the point. The dollar has been weak because the euro has been strong. The dollar has been weak because the US data flow was awful for months - the worst in the developed world. But equally the US dollar has been weak because there is a corner of the investment world that is questioning the very proposition of the US dollar's status over the long term under this President, this Administration, and what it has, and will, wrought.
Anyway, in the immediate term traders will be grappling with the sharp reversal overnight in US dollar fortunes was a result of Mnuchin's comments, month end shenanigans, or something else.
- As it stands EUR/USD is at 1.1909 after trading down to a low around 1.1820/25. GBP/USD is likewise stronger after a London market swoon - it's at 1.2927. USD/JPY is back under 110 now as I work down this column. It topped out at 110.66.
- On the commodity bloc the Canadian dollar had a cracking reversal trading through a range of around 190 points Thursday. The high around 1.2660 gave way to a solid rally in the Canadian dollar which drove USD/CAD sharply lower. It's at 1.2479 now after having a massive outside day. 1.2400/20 is the important support.
- Of the anitpodeans, the Aussie is doing much better than the kiwi at the moment. Traders are fretting over the prospects that polls suggest Prime Pinister English's government is in trouble at the election. I'm not exactly sure the market needs to fear Labour - but that seems to be the current excuse. And it's kept the kiwi under 72 cents at 0.7175 while the Aussie has rallied back to the mid 79 cent region at 0.7945. That's lifted AUD/NZD to 1.1074. That's the highest levels since late April 2016.
Commodities
- Gold is still bid. We know that because it dipped into the $1,298 region last night but found solid support and is back at $1,221 this morning. There are plenty of risks in global markets and gold is elevated until they play out. Techncially $1,264 is the Fibonacci target.
- Oil markets are getting messy. Where it not for the storm, and the shuttering of the refineries, and the disruption in activity to this most vital region of Crude and gasoline activity traders would have had no reason not to focus on the more than 78 million barrels of inventory that have been drawdown recently. Prices would have been higher as a result.
- But the disruption is real and the outlook has been clouded potentially for many month's. That said demand is demand, and as the release from the SPR shows, supply has to come from somewhere. So it is not entirely surprising that crude oil leapt 2.5% in WTI terms to $47.09 and 2.85% in Brent terms to $52.31. Catching that trade overnight might have been a lot harder however.
- Copper remains strong. And why not global growth data remains strong. Of course nuances within the Chinese markets are important too. But overall the global backdrop is supportive of copper. It's at $3.08 a pound this morning.
Have a great day's trading.