Originally published by AxiTrader
Key Takeaway
This could be a quick one today because there is not a terrible lot of fresh information.
Stocks in Europe were up a little while traders in the US were subdued with stocks staying fairly close to home. More importantly though while German rates a little lower US 2s and 10’s are squeezing higher at 1.376% and 2.615% respectively.
It’s all a sign that traders are wary of a hawkish hike from the Fed after its 2-day meeting which begins in the US tonight.
On forex markets, the Aussie and pound are the winners over the past 24 hours with gains of around half a per cent. That’s even after Nicola Sturgeon said she IS going to hold another referendum on Scottish independence. Euro ran above 1.07 at one point before dropping back to 1.0650 this morning. USD/JPY is hardly moved day on day at around 114.80
Crude is down again this morning but it has climbed back above $48 a barrel in WTI terms. However comments from Russia’s oil giant Rosneft suggests the OPEC/non-OPEC compact may be breaking down in the face of US shale oil’s relentless march back into the market. Base metals are looking better with copper up 1.22% in what has been a good start to the week for the sector. Likewise Chinese steel prices yesterday dragged iron ore higher as well. Not hard to see why the Aussie is higher in that context.
Gold is calm at $1203.
Now for the release of the monthly Chinese data dump of retails sales, urban investment, and industrial production in trade today along with the most important monthly data release in Australia – the NAB business survey.
What You Need To Know (with a little more detail and a few charts)
- S&P 500 +1 (0.06%) 2874 (7.00 am Sydney)
- Dow Jones Industrial Average -21 (0.1%) 20881
- Nasdaq 100 +15 (0.26%) 5,877
- SPI 200 +16 (0.3%) 5,774
- AUD/USD 0.7573 +0.45%
- Gold $1204 0.0%
- WTI oil $48.41 -0.16%
International
- It was a light night for news really. Nicol Sturgeon says she will move to hold a new referendum on Scottish independence by early 2019 when the terms of Britain’s EU exit should be known. The announcement came as Theresa May’s government put a revised bill – taking out the Lord’s amendments – back to the UK parliament.
- Also in Britain Markit reported that UK business sentiment surged with 52% of firms expecting activity to grow in the next 12 months. That’s the first reading above 50 since September 2015 Reuters reports. This relative strength comes even though UK business also expects input prices to rise over the next 12 months.
- In Europe Bundesbank president Jens Weidmann gave a subtle nudge to Chancellor Merkel when she meets with president Trump saying that criticism of Germany over the level of the euro is “baseless”.
- Chancellor Merkel herself has stressed the importance of trade as she prepares to meet with president Trump this week. Reuters reports Merkel said “The United States of America is a key trading partner for Germany and for the entire European Union," Merkel said. "Trade is advantageous for both sides and I'm looking forward to the chance to speak to the newly elected American president about these issues. "I believe that direct, one-on-one conversations are always much better than talking about each other. Talking together instead about each other - that'll be my slogan for this visit, which I'm really looking forward to."
- The media is reporting Tokyo is about to send an aircraft carrier on a tour of the South China Sea in what could be a contentious tour of duty across the region and certainly from the Chinese point of view.
- Turkey is getting more belligerent toward the Netherlands. Clearly president Erdogan sees some mileage in picking a fight with a small European nation to build up his credentials for the looming referendum. Not Germany tough. Or France.
- Speaking of France FIllon’s trying to restart his presidential campaign but is mired in more scandal. Interestingly also Marine Le Pen has taken a lead over Emmanuel Macron – it’s only slight, and it’s only first round though. So her chances of winning are still not great in the run off election.
Australia
- The Australian market stumbled at a big hurdle yesterday. In SPI terms traders rejected the overhead resistance that is a trend line arcing back to the 2007 high while on the physical market the S&P/ASX 200 fell 18 points, 0.32%, to 5757.
- The SPI is higher this morning, up 11 at 5769. But when you look at US market presently, and the fact that energy, basic materials, and industrials are in the red and financials are JUST in the black that might be an optimistic guess on where things will go across the course of the days trade on the ASX.
- When we look at the 4-hour chart of the SPI you can see it is clinging to its little 4 hour uptrend but also has a fairly flat(ish) top. These types of patterns are usually resolved to the downside – not always – but usually.
- Looking forward today the data out of China will be an important scene setter for the local market especially the mining secotr. There are some signs and a sense in the market that China is doing better than many hoped at the moment. Last week’s CPI result however gave me pause so I’ll be looking at retail sales closely today. The associated release of urban investment and industrial production will also give a further feeling of where the economy is at right now.
- Closer to home the release of the NAB’s business survey is going to be interesting. Last month the survey shot the lights out in terms of both conditions and confidence. It will be interesting to see if that strength is maintained this month. I’ll also be digging in the weeds to see how trading, profitability, and employment sub indexes look.
Forex
- The US dollar was quite a bit weaker at one point in the past day but it has recovered a little to be mildly up in DXY terms at 101.34. IT’s gained against the euro as the reality of the divergence between the Fed and the ECB bites. As I highlighted yesterday a careful reading of the leak from purported ECB sources highlighted that the idea the ECB would raise rates even as QE continued was really a thought bubble.
- That was confirmed yesterday by Belgian central banker Jan Smets who said that the ECB had not taken steps toward removing stimulus. The WSJ reports that Smets said - the latest policy statement “does not in itself signal a coming change in the monetary-policy stance,” Mr. Smets said. “It reflects a simple assessment of a somewhat changed reality, not more than that.”
- Anyway – Euro is back at 1.0650 this morning. USDJPY is at 114.85.
- Some reports somehow say the pound rallied because of the Scottish vote. But that doesn’t make any sense. Technically GBP has been basing for some days so I’m not surprised on that front while the jump in business optimism is probably more likely the catalyst. Equally though EUR/GBP reversal with the EUR fall has also helped the pound.
- The Aussie has had a good 24 hours as a combination of technical and the recovery in base metals and iron ore combined to see it catch a bid tone. It’s at 0.7579 this morning after a high of 0.7592 which neatly touched the downtrend line on the 4-hour charts from the recent high. Today’s Chinese data and NAB business survey will be important for the Aussie
Commodities
- While the Kuwaiti oil minister said he supports an extension to the oil deal it’s clear that Russia’s oil giants resolve to stay part of the production cut has diminished. You’ll recall that Rosneft boss Igor Sechin was never keen but seemed to have been strong armed into the deal. So it’s no real surprise that Rosneft is now questioning the cuts efficacy in the face of US shale’s relentless march to centre of the supply and demand debate.
- Echoing the point I’ve been making recently about the axis of power swinging from the Middle East to North America Rosneft told Reuters that “It became evident that US shale oil output has become and will remain a new global oil price regulator for the foreseeable future.” The company added that “there are significant risks the (OPEC-led) deal won't be extended partially because of the main participants, but also because of the output dynamics in the United States, which will not want to join any deals in the foreseeable future”.
- You can hear the groan as the cracks open up. As I wrote yesterday – it’s up to OPEC now to cut harder and for longer if they really want this deal to drive prices higher. That is of course a possibility.
- Copper is higher this morning after a solid 24 hours for base metals. BHP is still trying to get the striking workers back to the table at its Escondida mine while Freeport McMoran has a strike on its hands in Peru to go with its production permit issues in Indonesia. Chinese data today could be important for near term prices – although copper looks like it needs to either break up and through $2.64 a pound or down through $2.54 a pound for a big move. It was recently trading at $2.6275 closer to the topside.
- Gold looks becalmed at $1203. But in many ways that belies the poor price action the rejection of the run to $1211 in the past 24-hours. The bears still have it as we wait for the Fed.
Today's key data and events (all times AEDT)
- Australia - National Australia Bank's Business Conditions (Feb), National Australia Bank's Business Confidence (Feb) (11.30am)
- New Zealand - Nil
- China - Retail Sales (YoY) (Jan), Industrial Production (YoY) (Jan), Urban investment (YTD) (YoY) (Jan) (1pm)
- Japan - Nil
- Germany - Consumer Price Index (YoY) (Feb), Consumer Price Index (MoM) (Feb), Harmonised Index of Consumer Prices (YoY) (Feb), Harmonised Index of Consumer Prices (MoM) (Feb) (6pm); ZEW Survey - Economic Sentiment (Mar), ZEW Survey - Current Situation (Mar) (9pm)
- EU - Industrial Production w.d.a. (YoY) (Jan), Industrial Production s.a. (MoM) (Jan), ZEW Survey - Economic Sentiment (Mar) (9pm)
- UK - 10-y Bond Auction (n/a); CB Leading Economic Index (Feb) (1.30am)
- Canada - Nil
- US - NFIB Business Optimism Index (Feb) (9pm); Producer Price Index (YoY) (Feb), Producer Price Index ex Food & Energy (YoY) (Feb), Producer Price Index ex Food & Energy (MoM) (Feb), Producer Price Index (MoM) (Feb) (11.30pm); Redbook index (MoM) (Mar 10), Redbook index (YoY) (Mar 10) (11.55pm); 4-Week Bill Auction (3.30am)
Have a great day's trading.