Originally published by AxiTrader
Market Summary
Emmanuel Macron has won a decisive victory in the French presidential election defeating Marine Le Pen by approximately 65:35.
It's a victory that's likely to add to Friday night's positive tone and close in US and global stock markets. Yes US non-farm payrolls were solid at +211,000 with unemployment at a decade low of 4.4%. But the rally in the last couple of days of last week had an air of expectation that this victory would be delivered.
So there has been a little front running with European bourses up strongly again Friday. The CAC 40 in Paris rose 1.1%, Germany’s DAX was 0.55% higher, the FTSE 100 rose 0.70% and stocks in Milan had a party too, rising 1.5%. In the US the S&P 500 closed at its highest level ever of 2,399.29, up 0.4%. The Dow Jones Industrial Average was 0.26% higher, and the Nasdaq 100 rose 0.42% to close at 6,100.75.
That all combined for a strong reversal of the end of week collapse on the local market. SPI traders marked prices up 55 points Friday night suggesting a solid start to trade in Australia today.
In no small part that was because of a recovery in commodity markets. Copper is at $2.52, iron ore futures rose 2.4%, but it was oil which was the big story. After collapsing below $44 in Asian trade WTI rose $2.50 to close at $46.22.
As a consequence of all of the above gold's rally faltered and it’s back at $1227.
On Forex markets euro rallied and has opened up stronger again in early Asian trade, the pound is likewise better bid, the yen relatively calm, and the Australian dollar continues to trade technically and is back above 74 cents this morning.
Last week was very much one characterised by creeping fears about Chinese economic growth as authorities tighten credit and PMI’s printed on the weaker side of the ledger. So today’s release of the April trade data – and the breakdown of exports and imports – is going to be interesting.
What You Need To Know (with a little more detail and a few charts)
- S&P 500 +10 (0.41%) 2399 (7.25 Sydney - change since previous day)
- Dow +55 (0.26%) 21006
- Nasdaq +25 (0.42%) 6,101
- SPI 200 +55 (0.9%) 5,872
- AUDUSD 0.7412 Flat
- Gold $1227 Flat
- WTI Oil $45.49 +1.6%
International
- There is hardly any reason markets can not have a mega risk on rally if traders really want to. Solid US employment is a sign the economy is doing okay, FactSet saying earnings growth is running at a 13.5% clip year on year is another reason, the Macro victory in France also means that the overall global financial and economic status quo is no longer at risk, and geopolitical tensions seems to have de-escalated a little.
- Whether that happens is another story. But which ever way the markets head, stocks, bonds, forex, and commodities, will send a strong signal about how trade is going to flow over the northern hemisphere’s summer months.
- As highlighted above the 211,000 gain in non-farm payrolls, fall in unemployment to a decade low of 4.4%, and 2.5% wages growth year on year is a combination that is unlikely to dissuade the Fed from another hike in June. What I find interesting though is that 10-year US Treasuries are sitting at 2.35% with the two-year at 1.32% which is hardly a bearish bet by bond traders. Perhaps that because we have economic growth and solid earnings without upward wage pressure.
- That may complicate things for the Fed. But we heard from a plethora of Fed speakers on Friday who signalled that the path to 2 more rate hikes, and a reduction in the Fed’s balance sheet, are on the cards this year. My sense is the Fed is going to do what it believes it has to do and the market will need to catch up.
- Chinese data over the weekend showed that foreign exchange reserves stayed above $3 trillion again last month. That’s a sign that authorities really have got capital flows under control and represents another thing markets don’t have to worry about. Indeed over the weekend Pan Gongsheng, who runs China’s State Administration of Foreign Exchange department said “China has no intention of raising competitiveness via currency devaluation. It does not have this wish, and it also does not have this need”. Tick.
- But as last week’s price action in commodity markets showed there is a gnawing fear that Chinese growth is sliding. That means today’s release of April trade data is more important than usual for what is a pretty important data release already.
Australia
- No point worrying about last week’s price action given the rally in global markets Friday has lifted the SPI 200 up 55 points, 0.9%, and points to solid gains across the board in trade today.
- If we add those 55 points to Friday’s physical close of 5836 we get the ASX200 back above the trendline it broke down and through on Friday. That level/region of 5,880/85 is the key thing I’ll be watching today on the local market. That’s because I’m wondering what drove the utter capitulation of prices in the last days of last week and whether there isn’t something else behind it.
- It’s easy to write negative slants sometimes, and the reality is the bulls have every opportunity to take the ASX200 back toward 5900 and make that long awaited assault on 6,000 once again. But in the immediate term I’ll be watching to see if prices can regain and hold above this trendline. If they can, great. If not then that is an important signal in itself about the outlook.
- At the very least the relationship with the S&P 500 I reference often suggests a solid run back to last week’s highs
Forex
- It’s remarkable that the US dollar came under pressure AFTER the solid non-farms. Yes wages growth remains quiet at just 2.5% year on year but there was nothing in this report to dissuade the Fed from hiking rates, if that is its want, at the June meeting. The CME’s Fed probability tool currently suggests there is about a 78% probability of such a move. That should be supportive of the US dollar.
- But of course there is room for a relief rally in the euro now that the existential threat to the EU project has gone with the Macron presidential win in France. That’s important because with the ECB likely to change it’s tone about the recovery and interest rates at the June meeting there is still also some catch up on relative central bank expectations as well.
- Already this morning euro has broken the trendline from last years highs and is heading toward the highs of this current up channel. That level is around 1.1080/90 but as I said in my video Friday the chance of an eventual move higher has increased and maybe even a run at 1.14ish – last November’s high – isn’t out of the question eventually.
- Here’s the chart from my Reuters Eikon this morning.
- Elsewhere the US dollar is doing better. USD/SGD is at 1.4040, USD/JPY is back near 113 resistance at 112.89, Sterling is at 1.2977, and the Australian dollar bounced strongly off the bottom of this current downtrend on Friday and is at 0.7413 this morning.
- And, the Canadian dollar finally caught a bid. It’s at 1.3659 this morning.
Commodities
- Oil had a wild ride Friday and the collapse to $43.70/80 and subsequent recovery to $46.22 close looks very much like the kind of pessimistic crescendo markets often need for a bottom to be put in place. The low was under the $44.00/50 region I’d identified as the target on a break of $47 but the bounce had the hallmarks of uncovering real support for crude. Likewise for the move in Brent which is back at $49.10.
- Key to the move – or at least the ex-poste explanation I’ve read more than once – was the Saudis saying that the Russians are indeed on board for an extension of the production cuts into a second 6 months when OPEC meets on May 25. Readers know my view, I believe OPEC is underwriting its competition with these moves and as such it will struggle to achieve victory. That’s doubly the case in a price sense while US inventories remain stubbornly high and US gasoline demand is running below what most pundits had expected. Equally as I highlighted last week the pricing actions of Aramco in Asia – to retain market share – just reinforces the pressure the Kingdom and its partners are under.
- Anyway in the short term WTI needs to regain $47.00/20 to signal Friday’s spike was the low.
- Elsewhere gold tried to rally and failed at $1,235 before pulling back while copper is at $2.52 up a couple of cents.
Have a great day's trading.