Originally published by AxiTrader
Key Takeaway
A mixed night where the US dollar staged a comeback as the Philly Fed president comments March is live supported. Stocks on balance higher.
But Oil is down as traders fret about US shale again. Gold dipped but recovered and the Aussie dollar is under a little pressure.
What You Need To Know
- S&P 500 +1 (0.02%) 2293 (at the close)
- Dow +38 (0.19%) 20,090
- Nasdaq 100 +11 (0.19%) 5674
- SPI 200 +3 (0.1%) 5575
- AUDUSD 0.7623 -0.4%
- Gold $1233 -0.17%
- WTI Oil $52.24 -1.45%
International
- UK and German stocks were higher but French stocks are under pressure again losing half a percent as the election worries grow. Last night it was Emmanuel Macron in the spotlight denying an affair and opening the door a little bit further to Marine Le Pen.
- In the US it was new records for the Dow and Nasdaq. But the S&P hasn’t quite been able to follow. Stocks are a little lower now with the Dow up just 0.2% and the Nasdaq 0.12% higher. The S&P 500 is largely unchanged.
- Philly Fed president Harker said the March Fed meeting should be considered live for a rate hike. We saw this in Asian time but thre was a muted reaction. It got more traction and notice overnight.
- The US trade deficit fell more than expected in December as exports rose to the highest level in 18 months. Mmmmm…don’t tell the president. Separately The IBD/TIPP Economic Optimism Index rose to 56.4 in February of 2017 from 55.6 in January. It is the highest figure since October of 2004.
- China’s foreign Minister met with Australia’s Julie Bishop yesterday and made it clear he thinks no one is going to win in a face off between the US and China over the South China Sea. “There cannot be conflict between China and the United States, as both sides will lose and both sides cannot afford that,” Minister Wang Yi said. He added that “it is important to firmly commit to an open world economy…It is important to steer economic globalisation towards greater inclusiveness, broader shared benefit in a more sustainable way."
- China’s FX reserves fell $12.3 billion to $2.998 trillion in January data released yesterday showed. That means the total fall in reserves over the course of 2016 was around $320 billion. That’s deceleration from the $513 billion reserves fell in 2015.
- Also in China yesterday the central bank declined to add liquidity saying there is plenty in the system. That set the cat among the pigeons with thoughts turning now to more tighten by the PBOC. Word on the street is also that Chinese regulators are encouraging banks to tighten their credit and lending guidelines.
- Another ECB member has made it clear he things the US is on the wrong track on forex policy. Bank of France Governor Francois Villeroy de Galhau said in a newspaper interview “Before criticising Europe, any wise person should first of all respect international rules”.
- And Germany took a veiled swipe at Donald Trump saying it would use its G20 presidency to fight protectionism.
- Speaking of Germany Bundesbank president Jens Weiddmann said this morning that once inflation is back on target and entrenched in Europe it will be time to talk about raising rates and ending QE. That's not inconsistent with what Mario Draghi said the night before.
Australia
- After snatching defeat from the jaws of victory over the previous few sessions the ASX 200 it recovered from a test below 5600 to close at 5621, up 0.11%. It wasn’t exactly an awe inspiring recovery though and as the chart below of the physical ASX 200 suggests the local market is increasingly looking like it needs to test the “old garden variety consolidation level” at 5538 – the 38.2% retracement of the Trump rally. But I’m not bearish.
- SPI futures are largely unchanged leaving the market to its own devices today. That’s important given Rio is the first of the big miners to report. And even though I don’t forecast stocks Rio Tinto Ltd's (AX:RIO) report today is going to be very important for to gauge the outlook and direct sentiment toward the sector.That said though with energy and basic materials leading the S&P 500 lower overnight those sectors might find some pressure again today.
- The RBA was pretty upbeat yesterday about the outlook for the economy. That’s my take on the governor’s statement anyway. Phil Lowes made it clear he and the board believe growth will bounce back toward potential – 3% - and that even though inflation was lower than the market forecast for Q4 CPI it was in line with RBA expectations. Taken together that suggests a higher hurdle for another rate cut in Australia.
- I’ve written a full take on the RBA decision and what it means.
Forex
- The US dollar index is fighting back as the Euro comes under pressure as traders worry about the political situation in France in particular but Europe more broadly. Last night’s move – which took it to a high of 100.72 – has broken the downtrend in the US dollar that’s been in place since January 3’s high. That’s positive for the US dollar but negative for the many other currencies.
- Naturally the euro is suffering. It’s down 0.6% this morning at 1.0688 with 1.08 feeling like it is a long way away now. The big fall in German factory orders – down 3.0% against the +0.3% expected – weighed a little but it’s politics which is the key right now. Technically my system turned yesterday and is targeting 1.0625 and if that breaks euro could cascade lower. It has to break of course.
- The Japanese yen is the other big mover. While Euro looks under pressure the Yen and gold have benefitted. That said however the US dollar rally has pushed USDJPY back up above 112 this morning after trading to a low of 11.61 overnight. If it closes above there at 9am Sydney it will be a warning that the bears might be losing control of USD/JPY right now.
- Speaking of bears the Aussie came under pressure last night trading down to 0.7607. It’s found support at the old resistance level initially. But it has also broken the uptrend from January’s lows. The dailies are starting to look a little tired on the charts right now. AUD/USD was trading at 0.7631 a short time ago.
- Elsewhere sterling is a little higher this morning at 1.2512. The market seems happy that Theresa May’s Brexit plans will be tempered by parliament. Kristin Forbes breaking ranks and saying that the next move from the BoE could be up didn’t hurt either.
Commodities
- Crude oil is down again today. I’m reading more and more commentary in the past few days which discusses the point I made earlier this week about “who’s left to buy” if the speculative community is so long right now. As I write often positioning is a key component of my approach to markets. So with CFTC data showing WTI Crude oil longs at a record highs the bulls have a huge wall to climb to breach the recent high in the mid $55 region – even this morning at 1.2512. with Iran tensions escalating.
- Traders seemed focused on US shale production and OPEC’s comments overnight that the market should worry about it and that shale production will be lower than expected did nothing to assuage those fears.
- So this morning Nymex crude is down 1.8% at $52 a barrel, Brent is off a little less at 1.4% with the price at $54.92. In WTI terms the $51.80/52 region is support which protects from the run toward $50.25/50 I’m still anticipating.
- The bulls had a reasonable night in gold with weakness that saw prices dip to $1227 washing away as prices rose back to $1234 as I write. That leaves the bulls in control in a technical sense. It’s also a stance that is backed up by the political uncertainty in Europe, over Greece, and of course the French and other elections that are on the horizon.
- Copper dipped despite the looming strike at Escondida and freeport McMorans issues in Indo. Key here seems to be some concerns about the Chinese tightening as noted above. From a purely technical point of view as I highlighted in my daily video yesterday the charts suggest a move back to $2.54 a pound…and then we’ll see.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Nil
- China - Imports (YoY) (Jan), Trade Balance CNY (Jan), Trade Balance USD (Jan), Exports (YoY) (Jan) (n/a); Imports (YoY) CNY (Jan), Exports (YoY) CNY (Jan) (1.45pm)
- Japan - Bank lending (YoY) (Jan), BOJ Summary of Opinions, Money Supply M2+CD (YoY) (Jan), Current Account n.s.a. (Dec), Trade Balance - BOP Basis (Dec) (10.50am); Eco Watchers Survey: Outlook (Jan), Eco Watchers Survey: Current (Jan) (4pm)
- Germany - Nil
- EU - Nil
- UK - NIESR GDP Estimate (3M) (Jan) (2am)
- Canada - Housing Starts s.a (YoY) (Jan) (12.15am)
- US - API Weekly Crude Oil Stock (8.30am); MBA Mortgage Applications (Feb 3) (11pm); EIA Crude Oil Stocks change (Feb 3) (2.30am); Monthly Budget Statement (Jan) (6am)
Have a great day's trading.