Originally published by AxiTrader
Market Summary
Markets are caught between anticipation of what Fed Chair Yellen and ECB president Draghi might say at Jackson Hole tonight and fatigue with the lack of action from the White House and Congress to achieve their headline goals. That combination, and a lack of any data on which to act, has seen prices across many markets trade fairly quietly overnight.
Certainly stocks in the US have drifted a little with the S&P 500 off 5 points, 0.2%, to 2,438. The Dow Jones Industrial Average lost 0.13% and the Nasdaq Composite fell just 0.11% to 6,271. SPI traders have marked prices down just 3 points this morning after yesterday’s 8 point gain and it looks like it could be a quiet one ahead.
On forex markets the battle between the dollar index and the euro has progressed to the standstill stage with EUR/USD largely unchanged at 1.18. The pound hasn’t moved much either although the dollar has managed to push off important support against the yen. Among the commodity currencies the music is playing but traders are hearing a different song for each pair. The kiwi is about 0.3% lower, the Canadian dollar about 0.25% higher and the Aussie is largely unchanged at 0.7898.
Gold too was fairly quiet at $1,285. But copper surged again, popping the naysayers on the nose as it closed NY trade at $3.035 a pound. Oil went in the other direction as Hurricane Harvey shuttered some refineries and WTI dropped 1.8% to $47.61.
Now for Jackson Hole.
Here's What I Picked Up (with a little more detail and a few charts)
International
- President Trump was at it again overnight berating both House speaker Paul Ryan and Senate Majority leader Mitch McConnell for the failure to get Obamacare repealed. It’s another sign that the President doesn’t have the wit or the will to get things done in Washington and prefers the blame game. That’s important for markets because in conducting the continued Tweet storms in this manner he is undermining confidence that his administration will get things done.
- I’m still of the view that we will see some sort of tax cut plan in the months ahead. That would be Congress not White House driven because GOP members know they have a unique chance to get legislation through while they control both Houses. And they know the passage of tax reform may improve their chances of holding them in 2018. Time will tell.
- In the mean time stocks have stalled and retain a vulnerable stance as both the S&P and Dow have failed to get back above the uptrends on a weekly basis – so far of course because they will trade tonight. That said I thought I’d share a tight snapshot chart of the Dow weekly which highlights this. I’m using the Dow because it lead the rally higher and might be the one to watch if investors start to take money off the table rather than just not buy. In S&P terms I’m still targeting 2400 as the key level.
- Obviously the Jackson Hole confab that kicks off tonight is a potential event risk for markets. But Janet Yellen is set to speak on financial stability and Mario Draghi is unlikely to offer much guidance on policy given it is clear that he will have a strong debate at the next ECB meeting with Jens Weidmann and other hawks on the Governing Council. If the combination of the two speakers is Yellen continuing to advance the case for higher rates and Draghi sounding dovish then it could be a big night for the euro. Could be, not necessarily will be.
- And on that front Kansas City Fed president Esther George, the host of the event, told CNBC overnight that she still believes the path for interest rates is higher. "While we haven't hit 2 percent, I'm reminded that 2 percent is a target over the long term, and in the context of a growing economy, of jobs being added, I don't think it's an issue that we should be particularly concerned about unless we see something change," she said.
- On the data front last night UK GDP came in as expected but the break up was a bit worrying given it was driven by consumption – a good thing – but little else. Investment and trade made zero contribution to growth. Given that the risk for the UK economy was highlighted in a separate CBI monthly retail sales balance slid to -10 in August from +22 last month, its lowest since July 2016. Interesting.
- In the US there were more signs that the housing market is slipping. Existing home sales fell 1.3% in July to an 11 month low. But the fact that the reports continue to say that the slowdown is because of the lack of properties suggests that this isn’t actually a sign of economic weakness. We should see this reflected in higher prices going forward. Jobless claims were also released for the past week with a print of 234,000.
Australia
- Interesting day on the local market again yesterday as individual company moves and profit announcements were the key focus. We don’t trade individual shares at AxiTrader but many eyes were on Australia’s biggest bank’s fall below the low prices saw in June. That didn’t seem to have too much of a negative impact on the financial sector overall but it something to watch as the macro outlook for the S&P/ASX 200 and the SPI and it’s range has largely been a function of the competing movements of the sectors and individual stocks which make it up.
- It’s a range traders market at an index level and a stock pickers market at an individual company level.
- On the Macro front – where I sit and AxiTraders offers product – SPI traders have marked prices down 3 points from where they were yesterday afternoon. That’s still tightly within the range.
Forex
- It’s been an interesting 24 hours for forex markets. The US dollar is about half a percent stronger against the yen as traders again respect the bottom of the USD/JPY's 2017 trading range. Againist the euro the dollar is largely flat with EUR/USD at 1.18 while the pound recovered from a little weakness to be also largely unchanged this morning at 1.2800.
- In those moves you can see that forex traders are looking for the next catalyst, the next sign of what central banks might do, and are waiting for this and more information in the data. Naturally Jackson Hole is a big focus tonight but so too might the US durable goods release for July.
- Euro is caught in a a clear range between 1.1660/80 and 1.1910/20 while USD/JPY has a clear range bottom at 108. If any of these levels break we’ll know the next leg of the US dollar’s recovery – or not – has begun.
- But just like stocks on the ASX are trading independently of the overall index so too are many forex pairs marching to the beat of their own drum.
- The kiwi for example is under pressure again and has lost 0.3% to 0.7202 but the Canadian dollar is doing altogether better with USD/CAD down 0.25% to 1.2519. The Aussie on the other hand is hanging relatively tough at 0.7898 this morning as metals and iron ore remain strong, the global economy looks healthy, and the data continues to underpin the RBA’s conclusion that the Australian economy is heading back to – perhaps above – potential.
Commodities
- Hurricane Harvey seems to have caught the attention of crude oil traders overnight. It’s kind of counter-intuitive but reports are that the storm has seen the shuttering of some big refineries in its path as a reason for the fall in WTI of 1.63% to $47.62. I guess the argument goes that the refineries won’t need the oil in production so demand falls a bit. Very short term thinking if that’s what is really driving oil. But hey one of the things about the oil market is that futures contracts expire every month so we do get short term impacts hitting prices through the cycle and within the broader longer term trends.
- From a price action point of view WTI is stuck in a wedge at the moment and either side would need to break to move things along.
- Gold is at an interesting juncture technically. It’s largely unchanged at $1,285. I’ll write a quick update around 10am this morning.
- Copper continues to show why trend following can be such a powerful trading strategy. The chorus of naysayers continues to grow but copper was 1.81% higher last night and is at $3.03 this morning. As I highlighted in my AUD/USD column yesterday the OECD said this week that for the first time in a decade all the countries it monitors are growing. All folks, all.
- Here’s a chart of the price of copper and iron ore from my Eikon terminal at the moment. No wonder the Aussie remains well bid at the moment on such news.
Have a great day's trading.