Here Comes Trump And A Huge Oil Inventory Build

Originally published by AxiTrader

Quick Recap

It’s all about the US presidential race again this morning with the race tightening and uncertainty growing. Throw in a healthy dose of scepticism about the chances of an OPEC deal, a massive built in inventories and you get a recipe for US dollar and stock weakness with gold and bonds catching the bid.

Interestingly the Australian and Kiwi dollar’s are hanging very tough – at least against the US. On the crosses it’s another story

What You Need To Know

International

• The race is tightening and markets are rattled. That’s the easiest way to summarise what’s happened in overnight trade. Of course it’s a continuation of what we saw the previous night but it could continue given complacency around the status quo has been the prevalent them in markets for some time. It takes time for investors and traders to look away from the light and actually do something.

• So this morning we have some small losses on US stock markets which continue to amaze with their lack of volatility. But that volatility, that fear has to go somewhere and that somewhere is forex, bonds, and gold markets. Thus, the US dollar is weaker, gold is back above $1300, and US 10 year bonds are back below 1.8%.

• But the stability in US stocks is amazing really even though we’ve seen 5 down days in the S&P 500 in a row the percentage move is very small all things considered. Just 2.4% with the S&P 500 at 2102 this morning from the 24/10 high around 2154.

• US interest rates remain on hold but the Fed signalled it retains an intention to raise rates in December the FOMC statement this morning suggests. As usual the Fed statement is a long one but the opening paragraph tells you most of what you need to know. "the labour market has continued to strengthen and growth of economic activity has picked up from the modest pace seen in the first half of this year" The Fed said. That means that the FOMC "judges that the case for an increase in the federal funds rate has continued to strengthen but decided, for the time being, to wait for some further evidence of continued progress toward its objectives. The stance of monetary policy remains accommodative, thereby supporting further improvement in labour market conditions and a return to 2 per cent inflation".

• Besides the massive build in oil inventories overnight the key data releases were German unemployment at 6% instead of 6.1% expected but it’s worth noting that employment fell 13,000. British construction PMI was 52.6, stronger than the 51.8 expected and the 52.3 last month. US ADP employment data printed just 147,000 against expectations of 165,000 and after an upwardly revised 202,000 last month. ISM New York dipped to 49.2 from 49.6 last.

• On banking the rumours out of Europe is that Deutsche Bank AG (DE:DBKGn) NA O.N. (NYSE:DB) is going to be hammered by the new Basel rules which are about to be released in early 2017.

• Reuters is reporting that China is now having an internal debate about lowering the growth rate so that the government can continue reform of the economy and peel back some stimulus. Now that Xi is “core” there is a fair chance he can do what he wants so this might be a kite floated to gauge reaction. Frankly, I hope they do this and continue to wind back growth targets and stimulus because a slower, and slowing China is far preferable to one which blows up or has some sort of banking/economic crisis.

Australia

• More weakness on the local stock market yesterday with CSR and the gold miners together with a few others the only stock able to buck the bearish trend. Naturally gold stocks will be up again given last night’s move while energy stocks are likely to come under further pressure. Given the moves lower in almost every sector of the S&P we can expect more weakness in trade today.

• But not too much the SPI punters are betting with the December contract down just 12 points this morning at 5172. 5150 remains the key level for the SPI with 5188 the one to watch in the physical ASX. Looking at the SPI 5150 should hold as it would represent a full round trip from the October highs. But if it breaks prices could cascade lower. Here’s the chart:

Forex

• USD/JPY traded to a low of 102.99 overnight as the US dollar came in for heavy selling and forex traders did what forex traders do when risk goes off and uncertainty rise by buying Yen. That’s satisfied the target I was looking for yesterday. But USDJPY is looking like it could fall significantly further. At least another 150 points from where it is now at 103.33.

• Euro traded up to 1.1123 overnight on US dollar weakness. Its back at 1.1090 now with the S&P back above 2100 and off its 2094 low. It’s all about risk on or off right now – so if you think traders might have another day of uncertainty or two then Euro can get back to the overnight highs and possibly higher. But markets are going to get very thin very soon – especially with such a big and important data point out at 11.30 pm AEDT tomorrow night in Nonfarm payrolls

• Looking at the Aussie dollarit’s hanging tough along with the kiwi. Why you ask? Because they are a safe harbour in a world of trouble, especially the AAA rated Australia which has a 10 year bond rate around 2.3%. Naturally they are both losing a little ground on the crosses and this is not an environment where they do particularly well notmally. BUT there strength is worth noting and remarking on because all things considered both currencies are doing better than they ought. Or at least would usually do.

Commodities

• Did you hear the one about OPEC doing a deal to cut production? It’s hilarious! That seems to be the markets current feeling on the chances of any deal. News overnight is that the nations granted special status – Libya, Nigeria, and Iran – added 400,000 barrels of production a day last month with Iraq adding 50,000 as well. That makes the task of cutting production all the harder it seems.

• That was already weighing on prices as they continued their slide but then the ridiculously large build in inventories sealed Oil’s fate overnight. EIA inventory data showed forecasters were guessing that there would be a build of 1.75 million barrels but instead stocks rose 14.42 million – not a typo!

• So Crude is off another 3% with Crude Oil at $45.19 a barrel and Brent Oil at $46.69. It’s broken the uptrend line we have been targeting and watching and opens up a move toward $43.05.

• Gold, GOLD, gold. Boomity, Bommity, boom, boom, boom.

• There is nothing like a material uplift in uncertainty to get gold moving this year. And that is exactly what we’ve seen in the past couple of nights as the race for US president has materially tightened. Gold was up another $15 dollars this morning at $1303 and ounce when I wrote the very early piece at 6am. But it is back at $1297 now after it made a high just under $1308 overnight. So this move now satisfies as a retest of the breakdown we saw a month or so ago from $1305. The question now for traders is how much further.

• The easy answer is $1380 and above if Donald Trump wins. But he hasn’t won yet – it’s just a tight race. So for the moment I’m satisfied with this retest of $1305. Longs pared but small posi retained as there is a stretch target of $1333/43 pre-election.

• Copper backed off a tiny bit and is at $2.21 a pound this morning.

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

• Australia - AiG Performance of Services Index (Sep) (9.30am); Exports (Sep), Imports (Sep), Trade Balance (Sep) (11.30am)
• New Zealand - ANZ Commodity Price (Oct) (11am)
• China - Caixin China Services PMI (Oct) (12.45pm)
• Japan - Culture Day (24h)
• Germany - Nil
• EU - Economic Bulletin (8pm); Unemployment Rate (Sep) (9pm)
• UK - Nationwide Housing Prices n.s.a (YoY) (Oct), Nationwide Housing Prices s.a (MoM) (Oct) (6pm); Markit Services PMI (Oct) (8.30pm); Inflation Report Hearings (9pm); BoE Asset Purchase Facility (Oct), BoE Interest Rate Decision (Oct 13), Bank of England Quarterly Inflation Report, BOE MPC Vote Unchanged, BOE MPC Vote Cut, BOE MPC Vote Hike, Bank of England Minutes (11pm); BOE's Governor Carney speech (11.30pm)
• Canada - Nil
• US - Challenger Job Cuts (YoY) (Oct) (10.30pm); Continuing Jobless Claims (Oct 21), Initial Jobless Claims (Oct 28), Nonfarm Productivity (Q3), Unit Labor Costs (Q3) (11.30pm); Markit PMI Composite (Oct), Markit Services PMI (Oct) (12.45am); ISM Non-Manufacturing PMI (Oct) (1am); EIA Natural Gas Storage change (Oct 28) (1.30am), Factory Orders (MoM) (Sep) (2am)

Have a great day's trading