Originally published by AxiTrader
Welcome to my daily Markets Musings.
A lot shorter than usual because with the US out for Martin Luther King Day not much happened. Other than the US dollar getting hammered again that is.
Feedback always welcome
Greg
Market Summary
It was a holiday in the US to start the week but there was no respite for the US dollar which continued to come under heavy selling pressure.
Indeed after the euro and pound were the prime movers Friday, Monday’s selling was more broad based and relentless.
The euro is now closing in on 1.23 sitting at 1.2270 this morning. Sterling is above 1.38 for the first time since Brexit, and the yen rallied hard and is at 110.46 this morning. Commodity bloc currencies are stronger with the Aussie and kiwi up around 0.75% to 0.7970 and 0.7305 respectively. But the Canadian dollar is lagging a bit with just a 0.3% gain as traders wait for the BoC meeting tomorrow night.
Elsewhere German bond rates rose after ECB Governing council member Hanson said QE could end abruptly in September. That and another big EU trade surplus for November, along with an upgrade to the growth outlook for the region continue to drive sentiment the ECB is on track to change tack.
Oil is higher, copper and base metals too in what’s been a good day of positivity toward reflation of the global economy in the year and years ahead.
On the day today, we get the December new motor vehicle sales here in Australia. Tonight it’s German inflation data and wholesale prices along with similar data from Italy and then the UK PPI, RPI, and Inflation rate. Otherwise, it’s a fairly quiet day ahead
Here's What I Picked Up (with a little more detail and a few charts)
International
- In case you missed it yesterday you have to read Mohamed El-Erian’s piece in the FT on the outlook for global growth and commodities. I think it neatly summarises what’s going on at the moment in global markets. That is after many years of disappointment, many years where expectations were often tempered and often somewhat negative the outlook has brightened to such an extend that real confidence in the outlook has returned. Here’s a sneak peek at what he had to say.
- ECB members seem to be tone deaf to the impact of their hawkishness on the euro. But perhaps they don’t care, or don’t feel like they need to care given that the recovery of the euro in the past year hasn’t dented the euro area's recovery. We saw another sign of that last night with thee release of the latest trade balance for the EA. Data released overnight showed the November surplus expanded to €26.3 billion from the previous month’s €18.9 billion and the €22.4 billion expected. It’s against this backdrop I highlight that ECB governing council member Ardo Hansson said “If growth and inflation is evolving more or less in line with the projections, it would certainly be conceivable and also appropriate to end the purchases after September”. He added that “I think we can go to zero (monthly purchases) in one step without any problems”.
- In reserves news, the Bundesbank said it plans to add the Chinese Yuan to its portfolio of assets yesterday. Bundesbank board member Andreas Dombret said in Hong Kong yesterday the decision was made last year and that “the renminbi is used increasingly as part of central banks’ foreign-exchange reserves -- for example, the ECB included the RMB but also other European central banks did so”.
- Reuters reports its latest poll shows investors expecting Chinese growth to remain strong but to have slowed slightly in the fourth quarter of 2017 to a rate of 6.7%.
Australia
- You’d have to say that the S&P/ASX 200 performance yesterday was again disappointing given the backdrop of stronger commodity prices in our time zone and the really positive lead from Wall Street. If not for the miners the ASX’s gain of 7 points would have been impossible. This is something to contemplate folks. Notwithstanding the El-Erian article above and my own bullishness on the commodity complex, I wonder if traders looking at the rest of the Aussie market think it just doesn’t have what it takes to attract capital. Obviously only time will tell. But the performance of the past week has been a warning that the ASX may underperform the gains elsewhere. Until like last year the gap gets huge and the buyers return.
- Looking at the SPI this morning and prices have drifted 13 points from yesterday afternoon at 6013. There is no real reason to think the recent low at 5,999 will give way today. But it is the level to watch. It should be support. But if if it breaks a further fall of another 40/45 points is on the cards technically. Here’s the 4 hour chart.
Forex
- This is a momentum driven rally in the US dollar with the overriding bias traders have to sell it being constantly reinforced as traders focus on anything euro positive and US dollar negative. Just a week ago it seemed like this narrative might be shifting a little. But the sharp reversal and around 2% move in the euro in the past couple of days will have done some serious psychological damage to US dollar bulls. The good news of course is that the mania to sell dollars is such that we might actually be setting up the preconditions for it to make a bottom. Not yet, because we haven’t seen the kind of pessimistic selling crescendo we need to see a bottom in an asset.
- Indeed, the weekly Fibo extension for euro is 1.2751
Have a great day's trading.