Markets Waiting On Trump But Cautious Optimism Pervades

Originally published by AxiTrader

Key Takeaway

No big moves on a macro level overnight as markets, traders, and investors are waiting for president Trump’s address to the joint houses of the US Congress on Tuesday US time.

So stocks in the US are ever so slightly higher, Europe’s stocks were largely flat but slightly positive as they caught up with the Friday afternoon lift in US stocks to end the week. That meant they could ignore what had been a mildly negative day’s trade in Asia where Japanese stocks fell 0.9% and Chinese stocks lost around three-quarters of per cent. Australia’s 0.26% fall was more muted.

The US dollar is mixed, euro up, and the yen down while the Aussie traded between 0.7664 and 0.7707 over the past day and is back around 0.7683 this morning.

On commodity markets gold remains well supported but has been rejected on a test above the 200-day moving average, while oil and copper are both a little higher. Iron ore is also up.

US data, and anticipation of president Trump’s speech, saw US 10’s up a few points to 2.36%, German 10’s rose 1 point, but Italian, French and Spanish bonds rallied.

What You Need To Know (with a little more detail and a few charts)

• S&P 500 +3 (0.1%) 2370 (7.23 am Sydney)
• Dow Jones Industrial Average +16(0.08%) 20,837
• Nasdaq 100 +10 (0.2%) 5,8456
• SPI 200 +5 (0.1%) 5,698
• AUD/USD 0.7675 +0.08%
• Gold $1253 -0.23%
• Oil $54.08 +0.27%

International

• President Trump’s big address naturally has attracted a lot of anticipation in markets. There is a strong chance that it could be the catalyst for the next leg higher for the US dollar, bonds, and stocks. But there is also room for disappointment. I say that because markets are waiting for more news about tax cuts, infrastructure spending and their timing. Expectations about these, and regulatory relief, have been key drivers of the more ebullient mood in US markets and the swing in business and consumer confidence.

• What’s interesting from a stock market point of view is that the S&P, Dow, and Nasdaq have remained strong and printed new record highs even as bonds rallied, the US dollar stalled, and gold rallied. Is that a warning for stock bulls? It could be. But we’ll only know that after the fact. For the moment though we wait for president Trump.

• Traders are likely to be focussed on the overall speech, its plan, and most important of all for stock prices, bond rates and the US dollar, the timing of any stimulatory measures for the economy.

• But I’m also still watching the overhead resistance in the S&P 500 which comes in around 20-30 points above the market. It’s an old trendline stretching back to the start of the 2011 rally and provided support many times between 2011 and 2015. My hypothesis – in a charting sense – is that what was support now becomes resistance. Here’s a long run chart from my Reuters Eikon so you can see that relationship.

• A note on US stocks hit the wires from Investment bank Goldman Sachs (NYSE:GS) yesterday. The bank appears to have a similarly cautious outlook to me. The bank says the S&P will peak at 2400 this quarter and then end the year at 2300. Part of what’s going on is that Goldman believes there are near-term downside catalysts from a delay in the implementation of corporate tax cuts, multiple Fed hikes, and European elections.

• Looking at the data last night in the US we see durable goods were strong at 1.8% but ex-transport undershot expectations with a -0.2% print against the 0.5% the market forecast. Pending home sales were also lower with a fall of 2.8% against 0.8% expected. But the Dallas Fed manufacturing index for February printed 24.5, up from 22.1 last month.
  

• It’s a big week of Fed speakers with Friday a massive day as chair Yellen, and viv-chair Fischer are joined by 3 other officials out on the hustings. Last night though Dallas Fed president Robert Kaplan again said that the time is nigh to raise rates. He told a gathering of university students that even if the Fed raises rates “a few times” in 2017 monetary policy will still be in stimulatory territory.

• A new French presidential election poll was released overnight showing Emmanuel Macron should easily trounce Marine Le Pen in any second round run-of the two may face. That eased some market jitters.

• Warren Buffett has doubled his bet on Apple (NASDAQ:AAPL) this year reports overnight show. He also told CNBC he didn’t think US stocks were in bubble territory and would judge the president on how safe the US was in four years time.

• Data released last night showed Mexican non-oil factory exports fell in January by 5.8% which is the weakest outcome since October.

• Implied expectations of a Fed hike are rising. Between Friday’s close and now as I write the chances of a rate hike in March as gauged by the CME’s Fed Watch tool has risen by 9 percentage points to 35%. That’s still a long way from the 60/70% the Fed would like before it hikes. But they are moving the market in the right direction.

Australia

• A 15 point fall on the ASX yesterday wasn’t that bad all things, and the moves in the rest of Asia, considered. The SPI is up a point this morning as US stocks are clambering back into the black in the afternoon session. As is often the case the local market has undershot its US equivalent recently. While the Dow has been notching 11, about to be 12, days of gains the ASX has been going the other way.

• But with company profits yesterday – mostly miners – shooting the lights out with a more than 20% lift in the 4th quarter and with commodity prices remaining strong and sticky questions of valuation are likely to be occurring right now.

• Even though the ASX is off more than 100 points from the recent high it still seems likely while the US market remains elevated and strong the local market will retain a bid in an overall sense. But as is the emerging theme of 2017 – there is much going on below the indexes surface.

• Here’s the latest update of the ASX200/S&P 500 relationship from my Reuters terminal.

• Today we get two more pieces of the puzzle of the Australian economy. The release of the ANZ’s weekly consumer confidence report is of much interest because there has been some pull back recently in confidence as worries about family finances weigh. That’s important for economic growth in the future. As this is the first read after the Fair Work cut to penalty rates I’ll be interested if that’s had any impact.

• Also out is the Q4 balance of payments data. That will allow a final calculation of net-exports and give forecasters a better feel for where they should put their estimate of GDP to be released tomorrow. 0.6%/0.7% seems to be around where forecasters are settling at the moment.

Forex

• It’s a mixed night on forex markets. The US dollar is up half a per cent against the yen at 112.70 after a neat test into the support zone below 112 in Asia yesterday gave way to Yen selling in New York. Euro is up 0.3% at 1.0591, and the Swiss Franc is largely unchanged at 1.0083.

• Sterling is down about 0.2% had a bit of a flurry in the Asia/London crossover period after news broke that a Scottish referendum could be called as soon as March. That saw GBP/USD trade down to 1.2385 before recovering a little to 1.2447 as I write.

• Much is priced into forex markets at the moment and while the Yen is moving through a decent range, while emerging market currencies have been gaining ground until the last few sessions the US dollars stability – some say stalled rally – has been remarkable. These periods of low volatility often give way to a volatility expansion. That’s something I’m on watch for because it could usher in the start of a new trend in forex.

• Looking at the Aussie specifically the level of support in the mid 76 region and supply above 77 cents continues to keep it trapped in a relatively tight range. As I’ve written lately much is baked into the cake. My system is still short and perhaps a fundamental catalyst for the next leg could be Fedspeak across the course of this week and heightened expectations for a Fed rate hike.

Commodities

• Gee Whiz the oil market is long at the moment. With open interest on futures rising in line with the net long positions of the big speculators its clear this set of players is bullish on OPEC and its ability to deliver on production and higher prices. On that front last night the Iranain oil minister said compliance looks good and will improve.

• This morning WTI is up 0.35% at $54.18 while Brent is up 0.14% at $56.07.

• Like many other markets oil is trapped in a range and coiling for a break. My approach to this is usually to go in the direction of the break when it comes. In the mean time I stay on the sidelines – just like I am in GBPUSD.

• Gold tried to break above the 200 day moving average at $1261 last night with a high above $1263. But it’s back at $1257 now. Still strong but 200 day moving averages attract a lot of attention so it will be interesting to see how prices move in the days ahead. A break, or rejection, which ever it is will be instructive in terms of price action.

• They are digging in at Escondida it seems. Reports this morning are that the union has rejected stories it is back in talks with BHP Billiton Ltd (AX:BHP). That, and the overall metals rally, helped copper edge a little higher overnight.

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

• Australia - Current Account Balance (Q4), Private Sector Credit (MoM) (Jan), Private Sector Credit (YoY) (Jan) (11.30am)
• New Zealand - Trade Balance (MoM) (Jan), Trade Balance (YoY) (Jan), Exports (Jan), Imports (Jan) (8.45am); ANZ Activity Outlook, ANZ Business Confidence (Feb) (11am); M3 Money Supply (YoY) (Jan) (1pm)
• China - Nil
• Japan - Industrial Production (YoY) (Mar), Industrial Production (MoM) (Mar), Large Retailer's Sales (Jan), Retail Trade (YoY) (Jan), Retail Trade s.a (MoM) (Jan) (10.50am); Vehicle Production (YoY) (Jan) (3pm); Annualized Housing Starts (Jan), Housing Starts (YoY) (Jan), Construction Orders (YoY) (Jan) (4pm)
• Germany - Retail Sales (YoY) (Jan), Retail Sales (MoM) (Jan) (6pm)
• EU - Nil
• UK - Gfk Consumer Confidence (Feb) (11.01am)
• Canada - Raw Material Price Index (Jan), Industrial Product Price (MoM) (Jan) (12.30am)
• US - Trump's speech to Congress (1pm); Gross Domestic Product Price Index (Q4), Gross Domestic Product Annualized (Q4), Wholesale Inventories (Jan), Goods Trade Balance (Jan), Personal Consumption Expenditures Prices (QoQ) (Q4), Core Personal Consumption Expenditures (QoQ) (Q4) (12.30am); Redbook index (MoM) (Feb 24), Redbook index (YoY) (Feb 24) (12.55am); S&P/Case-Shiller Home Price Indices (YoY) (Dec) (1am); Chicago Purchasing Managers' Index (Feb) (1.45am); Consumer Confidence (Feb), Richmond Fed Manufacturing Index (Jan) (2am); 52-Week Bill auction, 4-Week Bill Auction (3.30am); FOMC Member Williams speech (7.30am)

Have a great day's trading.