Originally published by AxiTrader
Quick Recap
The Iraqi oil minister’s comments I mentioned yesterday were in many ways the big story overnight for AxiTraders as investors worry that an OPEC deal is harder to put together than the Saudi’s and the Russians are suggesting. That knocked Crude Oil down 1% and as a result energy shares are the worst performing sector in the S&P 500. But oil is still hanging tough and I'm still in the camp a deal will be nutted out and inked in November.
Otherwise stocks have had a good day on what some are calling “merger Monday” with a number of big deals buoying sentiment and prices. A solid print from the preliminary Markit manufacturing PMI overnight and the fact that it ran to a 12 month high also helped the market.
On forex markets the US is a little stronger on average and the AUD/USD is back at 76 cents after an aborted run higher.
What You Need To Know
International
- Merger Monday saw the Dow Jones Industrial Average up 77 points, the Nasdaq 100 up 1% and the S&P 500 up 10 points to 2151 for a half a percent move.
- Fed president James Bullard said overnight that one rate rise is on the way but reitereated his recent comments that that will be it for now. He’s a real dove, in a very different way to others because he thinks the US economy is in a new low groeth low inflation paradigm. But his ideas are clearly not lost on Janet Yellen’s Fed and give power to the idea Yellen floated about running the economy “hot” for a while.\
- The Bundesbank is a bit excited that inflation might hit 1%, sorry exceed, 1% by the end of the year on the back of rising fuel prices. Really, for the first time in my career thre really isn’t anyone in the developed world who doesn’t want higher inflation. Even Mark Carney.
- Speaking of which the British CBI released data overnight showing that the big fall in Sterling has got british industry excited about their competitiveness.
- Belguim scotched the EU/Canada free trade deal after Wallonia wouldn’t agree. It’s a clear sign that Europe is a messy place and Brexit is going to be a fraught period of negotiation.
- The Swiss National Bank says rates can still go lower in his nation because the bank is yet to hit its lower bound, although it’s close.
- Story of the day – although I don’t know much about it – A Chinese web cam manufacturer is recalling their cams from the US after it was discovered they aided the recent big cyber attack by being hijacked.
Australia
- We had a poor start to the week yesterday again testing down toward the 5380 support zone before rebounding to end the day off 21 points at 5408. That recovery is sort of mixed for traders – off the low but still down on the day. That price action is really interesting and the lead from futures traders, who have the SPI up just 3 points this morning in trade suggest the local market may miss the lift you might expect from the US rally overnight.
- Of course that the strength is centered on and induced by the M&A activity and strong factory data helps explain the underperformance to a certain extent. Key for the outlook now is that the physical ASX needs to hold above this 5380 support.
- In SPI200 terms you can see in the chart that support - like the physical - keeps coming in near recent lows. That reinforces the 5350 region as key support.
Forex
- As I noted yesterday the US dollar’s strength is not universal. The moves are very much idiosyncratic to the specific pairs.
- This morning its USD/JPY turn to rally while the Australian dollar is back at 76 cents and the EUR/USD is basically unchanged at 1.0876 this morning. USDJPY's key topside resistance is still 104.70 - a break of that would opened the way to my first stop at 107.85/108.10 in what I think will be an ultimate run to 112.
- That the move is as much about individual weakness as it is US dollar strength is an important point to note because it says a couple of things about the US dollar strength. It is both incremental and because it is being driven by weakness on the non-US side of the cross suggestive that it could last longer than many expect.
- For the moment though it feels like the US dollar may need a period of consolidation - at least that what the dollar index chart suggests.
Commodities
- I was thinking yesterday after doing my morning note and talking about the Iraqi oil minister’s comments that Iraqi is fighting a war and should be exempted from the production freeze because other countries have taken their market hare that it looks more likely than not that the Saudis need to shoulder a substantial part of the burden from this cut/freeze.
- Overnight traders seem to have come to a similar conclusion with the price of Crude Oil and Brent Oil market down around 1%. But buoyed by comments from the Russian Minister that his country and the Saudis are working together. Equally comments from Iran’s, deputy oil minister, who is also expected to be exempted from the production freeze, that the $55-60 region is a good target for prices to head back to reinforces my view this is where OPEC is aiming oil to settle.
- For the moment though prices are constrained below recent highs although also supported as the candle on the chart below shows
- Gold is down $4 an ounce and copper is sitting at $2.08 a pound. Gold is interesting. It’s stopped falling as rates stop rising but it seems it has lost some of lustre with money managers as they position, and expect, rates to rise across the globe.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Nil
- China - Nil
- Japan - Nil
- Germany - IFO - Business Climate (Oct), IFO - Current Assessment (Oct), IFO - Expectations (Oct) (7pm)
- EU - ECB President Draghi's Speech (2.30am)
- UK - BOE's Governor Carney speech (1.30am)
- Canada - Nil
- US - Redbook index (MoM) (Oct 21), Redbook index (YoY) (Oct 21) (11.55pm); S&P/Case-Shiller Home Price Indices (YoY) (Aug), Housing Price Index (MoM) (Aug) (12am); Consumer Confidence (Oct), IBD/TIPP Economic Optimism (MoM) (Oct), Richmond Fed Manufacturing Index (Oct) (1am); 4-Week Bill Auction (2.30am); 2-Year Note Auction (4am); API Weekly Crude Oil Stock (7.30am)
Have a great day's trading