Originally published by AxiTrader
Market Summary
More records for US stock markets overnight with the S&P 500 closing at 2,498 – up 0.08%. The Dow Jones Industrial Average closed up 0.18% at 22,158, while the Nasdaq 100 finished the day at 6,460 after a rise of 0.1%.
Stocks in Frankfurt and Paris were also higher although the FTSE 100 in London lagged again with a 0.28% fall. Here at home SPI traders have followed up yesterday small fall – but awful price action – by marking prices up just 1 point.
On forex markets the US dollar's recovery continued and it made strong gains across the board. The euro lost around 0.7%, the pound 0.6% while the Swissie and yen continued to be pressured. The kiwi is down and the Aussie is resting right on the 3-month uptrend line at 0.7982 after a 0.44% fall.
Bond rates are still rising with US 10's now back at 2.195% while the 2-10 curve is at 84 points.
On commodity markets gold fell 0.72%, copper – and metals – were hit hard but oil rallied on upgraded forecasts for demand and clear signs that OPEC’s inventory strategy is working.
On the data front today we get jobs data in Australia while offshore the highlights tonight are the Bank of England interest rate decision and the US CPI data. An of course in China today we get the triumvirate of retail sales, industrial production, and fixed investment.
Here's What I Picked Up (with a little more detail and a few charts)
International
- US PPI was a little weaker than expected in August data released last night showed. Headline PPI rose 0.2% in August taking the YOY rate to 2.4% with core gains of 0.2% and 1.9% respectively. The increase is an important input into the Fed’s deliberations – along with CPI data to be released this evening – and the energy induced bounce back from the fall in July is an important turnaround.
US PPI YoY (Source: TradingEconomics.com)
- IS TRUMPONOMICS ON THE WAY BACK? Greg Valliere, one of my favourite politico market strategists in the US has been talking to clients and what he found should be very interesting for traders. In his note overnight he said that “For the first time in memory, we have encountered NO clients who worry about an imminent recession, none. There are two camps – those who think the economy will continue to grow moderately, and those who think it will accelerate... the only missing ingredient to this Goldilocks consensus is the stubborn inability of wages to significantly increase”.
- He also said there has been a surge in support for President Trump noting “Even his detractors agree that Trump had to do something last week, since Paul Ryan and Mitch McConnell weren't getting the job done. Trump's deal with "Chuck and Nancy" gets higher grades than we thought; instead of criticizing the president for abandoning GOP principles, the consensus is that he was elected to break logjams, and he's doing it”.
- That builds on my hypothesis that the US dollar, US bonds, and stocks are benefitting from this renewed compact and the growing chance that President Trump reaching across the aisle will activate a mechanism to get tax cuts – perhaps even tax reform – done. Equally it opens up the chance of more spending, and thus stimulus, will be available to stimulate the economy. That’s important for traders. And it’s worth noting he is having bipartisan talks this morning my time with 13 members of the House of Reps. Trumponomics folks, it might be back.
- The global incredulity with the lack of wages growth grew overnight with data from the UK showing unemployment at the lowest level since 1975 of 4.3% but wages growth of a tepid 2.1%. That wages data suggested to many traders that the BoE will look through the spike in CPI at its meeting tonight which knocked Sterling off its highs amid US dollar strength.
- In Germany, inflation data released overnight showed prices running at a 1.8% year on year increase.
- More interesting though were comments from ECB chief economist Peter Praet who – not unexpectedly – took the opposite side of the discussion to the hawks lead by Sabine Leutenschlanger. Praet said “the baseline scenario for inflation going forward remains crucially contingent on very easy financing conditions which, to a large extent, depend on the current accommodative monetary policy stance. Therefore, maintaining a steady hand continues to be critical to fostering a durable convergence of inflation towards our monetary policy objective”.
Australia
- An awful day technically for the S&P/ASX 200 index yesterday. The high around 5,676 gave way to a close at 5,744 for a loss on the day of 2 points. That in itself is not a big deal. But the utter failure to hold onto the gains near minor resistance at 5,780 and the candlestick the index printed puts the focus back toward the downside in the near term.
- SPI traders knocked a few more points off overnight with prices down 5 points when I started writing at 5am but that's now turned into a 1 point gain. . Support levels today are 5,700/10 in the physical market and 5,727 for SPI traders.
- Westpac’s consumer sentiment data yesterday was positively negative. Sentiment rose 2.5%. But at 97.9 it showed that pessimists still outweigh the optimists. What’s most interesting for me – as a guy who is worried about the impact of an eventual focus on households massive debt pile – was the question about the wisest place for savings. Real estate hit its lowest level since the 70’s at 10.5%. But it’s paying off debt – still near GFC levels – and bank deposits which together were almost 50% which really caught my eye. Something to watch.
- Unemployment today though is the more important data point as it acts as a salve to concerns about finances and consumption. Forecasts are for a rise around the usual 15-20K mark with unemployment of 5.6%.
- And before I leave Australia, how’s RBA board member Ian Harper’s commentary on policy yesterday. In a phone interview with Bloomberg Harper said that despite the strength of the Australian economy it is “still operating below its potential”. And that has implications for monetary policy “So long as that is the case, why would anyone be suggesting tightening monetary policy when the economy is operating below potential? I mean hello?” he said.
- I mean hello, who the heck says I mean hello? But he did hit on the concern I’ve raised many times about households. He said “Consumption is two-thirds of gross domestic product,” Harper said. “If households as a group were suddenly to decide that we really can’t afford this now, we’re going to start to slow up consumption to keep ourselves on an even keel, then that will certainly pull GDP growth away from where we want it to be”. That sounds very much like we won’t be raising rates too far or any time soon
Forex
- The US dollars recovery continued overnight except over the past 24 hours it has been broad based. I didn’t report it yesterday but the latest monthly BAML survey of big global investors showed a large number felt the short dollar trade had become crowded. That’s an important indicator that the pressure may be coming off because these investors won’t be selling dollars. And it opens up thee topside.
- So this morning we have euro down and through support at 1.1884 for a loss of 0.68% on the day. 1.1800/20 is the level to watch for the EUR/USD and for the US dollar and other pairs more broadly.
- The yen and Swissie have lost more ground at 110.56 and 0.9643 for losses of 0.36% and 0.44% respectively. These moves, and those of the euro, sterling, and other pairs, are not associated with risk appetite moves today so this is a genuine US dollar move and continues to support my hypothesis that an interim base at least is in for the US dollar.
- That’s hurt the Aussie and kiwi overnight as well. The Australian dollar has suffered under the dual weights of the stronger US dollar and a big reversal of metal and iron ore markets in the past 24 hours. At 0.7982 the AUD/USD is down 0.44% and just clinging to the 3 month uptrend and a break of last night’s low at 0.7970 could usher in a move toward 0.7850. The kiwi is down 0.69% at 0.7238.
- The pound is lower as well now down 0.59% at 1.32. But the Canadian dollar has managed to hold firm on more solid data and a lack of concern from the Canadian finance minister yesterday who simply stated the truism that the Canadian dollar's strength reflected the economy’s strength. USD/CAD is at 1.2178 largely unchanged.
Commodities
- Some bullish news from the IEA overnight helped crude rally 2.32% in WTI terms and 1.6% in Brent terms. That’s left the former at $49.35 a barrel and right on resistance while the latter is at $55.13.
- The IEA upgraded its forecasts for demand this year and next while also stressing that OECD average inventory levels were now approaching their 5 year averages.
- In other news there were big moves in US inventories Crude spiked more than 5 million barrels while gasoline stocks fell a record setting 8.4 million barrels as US energy markets continue to react to the aftermath of Hurricane Harvey.
- In related news the Saudis are apparently now targeting exports as well as production to try to drive prices higher.
- Gold is lower again at $1322. A stronger US dollar and rising bond yields are hurting gold at the moment. It looks biased back toward $1300/05 at the moment to see where the real support lies.
- Copper got sold heavily again overnight losing another 1.75% to $2.96 a pound. It’s closing in on Fibonacci support and the bottom of the trend line at $2.93 as trader fret about inventory levels and demand. Or perhaps that’s simply the excuse, the narrative, to fit what’s a pretty simple and usual retracement after a very sharp rally.
Have a great day's trading.