Originally published by AxiTrader
Key Takeaway
The Trump trade and risk appetite are back in vogue after solid Chinese trade data and an apparently more conciliatory president Trump built on the previous night's promise of a Trump tax plan to drive US stocks to new all-time highs.
Slightly incongruously, bonds remained calm and gold recovered from heavy selling. Crude was higher as OPEC compliance data buoyed traders and copper boomed through the top of its range as BHP Billiton Ltd (AX:BHP) decrce majeure at its Escondida copper mine.
On forex markets the ebullient stock market, a rally in base metals - and iron ore - and the RBA's continued upbeat outlook for growth supported the Aussie relative to other currencies as the US dollar pushed a little higher.
What You Need To Know
- S&P 500 +8 (0.35%) 2316 (7.46 am Sydney)
- Dow +97 (0.48%) 20,269
- Nasdaq 100 +19 (0.33%) 5734
- SPI 200 +10 (0.2%) 5677
- AUDUSD 0.7676 +0.6%%
- Gold $1234 -0.24%
- WTI Oil $53.85 +1.48%
International
- Friday night saw new record highs for US stock markets as the combination of a refocus on tax and a more conciliatory Donald Trump, not to mention solid Chinese trade data, saw traders accentuate the positives again. At the close the S&P 500 ended at 2316, up 8 points of 0.35%. The Dow was 0.48% higher and the Nasdaq rose 0.48%.
- On bond markets the rally in stocks hasn't hurt rates. That, and gold's rally, is interesting and something I need to ponder for what it means.
- Looking at the stock market rally specifically it's worth noting that psychology is important in markets and its clear traders still want to believe in Donald Trump. That makes his one-China comments, and meeting with Japanese prime minister Abe important.
- After the first two weeks of his presidency were so fractured and aggressive many wondered – Me included – if he’d get bogged down in immigration and issues other than the ones investors and traders were focussed on before the inauguration. That is, the tax, regulation, and infrastructure plans. Tax is the key though with many CEO’s and CFO’s mentioning it in their reports during earnings season. So last week's promise that a "phenomenal" tax plan would be released soon was important. Throw in a conciliatory Trump who affirmed the “one-China” policy in a call with president Xi, and trump reaffirming his commitment to Japnese and regional security and we have the Trump the market thought they were getting from his actions as president-elect.
- So even though I know I said it a couple of times last week, I really believe he will be like the computer in the 1983 movie War Games. Playing tic-tac-toe Matthew Broderick stopped the world from a computer driven first strike and nuclear annihilation by showing it you can’t always win. Trump is learning this already I hope. And that’s important for market sentiment. As ever though we are only one tweet away from me writing the opposite tomorrow. But I remain hopeful.
- Donald Trump warned the Iran president Hassan Rouhani he’d “better be careful” over the weekend as Tehran becomes more belligerent.
- Fed vice-chair Stanley Fischer said there remains significant uncertainty about the implementation of Donald Trump’s policies and as such the Fed had to be guided by it’s statutory mandate.
- North Korea launched another missile over the weekend. It landed in the sea between North Korea and Japan apparently
- The SCMP reports this morning that China’s Forex regulator – SAFE – said it was seasonal factors which saw reserves fall more than expected last month.
- And speaking of China the trade data released Friday beat expectations by a mile. Exports in USD terms were up 7.9% in USD terms, more than doubling market expectations of a rise of 3.3%. On the other side of the ledger imports were up 16.7%.
- Taken together that was seen as a positive indication of the health of the global economy.
Australia
- The ASX had a cracking rally Friday up 0.99% for a 56 point run which left the 200 index at 5720.
- The rally in the last two days of the week decisively broke the January downtrend. Coming after a failed probe below the 38.2% support level of the Trump rally, and with Friday’s close breaching the previous recovery attempt the technical outlook looks positive for the local market.
- Friday night saw further small gains on the SPI 200 which was up 10 points to 5677. Much of the ebullience in Chinese metals – iron ore was up more than 4% - was already factored into our trade Friday. But given the break higher, especially the weekly close above 5700 in the physical futures traders are pointing at a much better start to the week than what we’ve become used to on a Monday lately.
- Naturally the RBA was in focus again on Friday after the release of its quarterly Statement on Monetary Policy. We didn’t learn anything we didn’t already know from the governors statement last Tuesday and Speech Thursday. But there has been a lot of focus on the fact they have downgraded growth in 2017 with the pick up.
- It’s makes Q4 GDP to be released on March 1 a huge number for markets and the RBA. That’s particularly the case given that the RBA has now consistently said since Novermber last year that growth in Australia is strong and has been forecasting a return to 3%. Net exports are likely to be a good base for the rest of the economy to build on given improved terms of trade and the November and December trade data. But the big question is how the rest of the economy – the domestic consumption part especially – is going. We’ll know in a few weeks.
- Looking at the week ahead here in Australia there are three really important data points. As always the NAB’s monthly business survey is the big one for me as we get a sense of what business is thinking and – more importantly – feeling through the results for conditions, trading, profitability, and orders. That’s out Tuesday morning. Also out Tuesday is Chinese CPI and PPI data. Inflation in China has been rising for the past six months after being under downward pressure for a long time. Further increases – and where they are sourced from – gives an eye into not just Chinese inflation but also underlying economic activity – that’s important for Australia.
- Wednesday sees the release of the Westpac consumer sentiment survey but the big one for the week is the monthly release of Australia’s jobs numbers Thursday. As rubbery as it can sometimes be it is still the most important data release each month for traders. Current expectations, based on the Reuters poll are for a 10,000 increase in employment with the unemployment rate staying at 5.8%
Forex
- The US dollar got it’s mojo back toward week’s end as it hammered the Yen back above 113 and saw the euro dip a little. It’s still consolidating however in real terms as traders remain wary that Donald Trump will move toward, or tweet, or say, something that undermines it’s strength.
- That’s making traders wary and keeping forex markets choppy. But a look at the charts show that the USD, index terms, has successfully held the consolidation zone over the past two week's. It's back at 100.71. Not out of the woods, but looking on a better footing.
- This morning the euro sits at 1.0622, the Yen is under pressure with USDJPY at 113.60, sterling is at 1.2473 and the Swiss franc is at 1.0028.
- The question for traders is if the US dollar’s rally was part of the Trump rally, and stocks are rallying again, then will the US dollar rally too? Or will traders be more circumspect worried about getting blindsided by Trump or Peter Navarro. It’s an interesting question. But as the chart above shows if you believe the US dollar is going to rally, or break lower, the level you are right or wrong is obvious.
- For the Aussie there is nothing like a rally in risk appetite, metals, and stocks to keep it bid. Chinese trade data was also positive so we see the Aussie dollar is up at 0.7674. 77 cents is still a tough nut to crack but if we have a week of ebullience in stocks and metals the Aussie should make an assault on the wall.
- It's worth noting CFTC released Friday data shows the buyers were in again for the AUD and subtly increasing their net long.
Commodities
- We got formal data on OPEC’s production cut compliance which showed 90% of target level cuts achieved in January. The data backed up the Reutters survey I talked about last week which showed it was the Saudis who were the big swing producer with cuts that more than balanced out the underwhelming response from some members.
- But Crude was up on the news with Nymex closing at $53.86 and Brent at $56.70. Both still trapped in this rather tight and choppy range we’ve seen lately. But like the US stock market if the market doesn’t want to, or wont, go down that tells us something about overall sentiment.
- On this Chinese import data for crude will have encouraged the bulls and OPEC. Data released last week showed that imports in January were 27.5% higher than a year earlier as the nations production winds down. The 8.01 million bpd during the was a little lower than Decembers record 8.57 million bpd but summed to a month end total which was the third highest on record.
- Technically though WTI is going nowhere until it breaks either side of the range.
- Gold had an interesting 24 hours to end the week. It closed at $1234 which is a phenomenal recovery after breaking the uptrend from the 1180 lows in January. Gold traded to a low of $1221 before it surged back above $1324. While it stays above $1219/20 it still has a topside bias. This should be good for gold miners in Australia today.
- Boomity, Boomity, Boom, Boom, Boom. Copper roared higher on Friday as the supply disruption we were talking about last week finally bit. BHP declared Force Majeure on copper shipments at the Escondido mine. That means that the company will not be able to honour its contractual supply commitments while the strike at the mines disrupts supply.
- $2.90 a pound is the level a break of this range consolidation suggests.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Electronic Card Retail Sales (MoM) (Jan), Electronic Card Retail Sales (YoY) (Jan) (8.45am)
- China - FDI - Foreign Direct Investment (YTD) (YoY) (Jan) (n/a)
- Japan - Gross Domestic Product (QoQ) (Q4), Gross Domestic Product Deflator (YoY) (Q4), Gross Domestic Product Annualized (Q4) (10.50am)
- Germany - German Buba Monthly Report (10pm)
- EU - Nil
- UK - Nil
- Canada - Nil
- US - Nil
Have a great day's trading.