Originally published by AxiTrader
Quick Recap
The AUD/USD collapsed from the supply and resistance zone above 77 cents yesterday after much weaker than expected jobs data yesterday. Overnight Crude Oil joined the collapse with gusto after the head of Russian oil giant Rosneft said the country could increase production if it wanted to.
Gold is a little weaker after the US dollar strengthened again on the back of comments from New York Fed president Bill Dudley (that rates will probably rise) and ECB president Mario Draghi (that tapering won't end abruptly).
What You Need To Know
International
- Stocks in the US have recovered from their overnight lows with the S&P 500 back at 2141 at teh close after hitting a low of 2133 earlier in trade. That’s a dip of around 0.1% which is where the Dow Jones Industrial Average sits as well with the Nasdaq 100 off 0.17% at the moment. US 10’s are at 1.75%. European bonds were a little lower after Draghi’s comments as well.
- Mario Draghi just loves to play with markets and he was at it again overnight. That the ECB made no change to policy was expected that Mario Draghi tried to credibly claim the governing council did not discuss extending QE sent EUR/USD higher before he noted that staff were working on plans to make an extension possible then reversed that move. He did seem to promise no sudden stop to QE, and said December was the time for that discussion.
- UK prime minister Teresa May was at an EU leaders meeting and said that there is no turning back from Brexit, which prompted French president Hollande to note that she would get a hard Brexit. It’s something to remember going forward that elements in Europe want to punish the UK.
- While on Brexit the BoE’s chief economist Andrew Haldane said overnight that the bank’s QE program would give a 300 billion pound boost to spending in the economy. On that even though retail sales were a little weaker than forecast they still showed that UK retailers just enjoyed their best quarter since 2014. If the UK can avoid talking themselves into recession they might get through this in better shape than many are forecasting.
- China’s statistics bureau said yesterday that the PPI, freshly in positive territory after years of deflation, will stay positive in the months ahead. Interestingly though the spokesperson said this is likely for the year on year number, base effect it seems, but noted that month on month volatility is highly likely.\
- New York Fed president Bill Dudley gave a clear signal yesterday that the Fed remains on track to hike rates. He said that as long as the economy stays on the current trajectory a rate hike this years seems likely. That is consistent with what we are hearing from most Fed speakers. But its also gives a signal about what we have to watch. IF the data deteriorates, or markets go into a funk the Fed will have the right to, and probably will, change its outlook.
Australia
- A 7 point gain on the ASX yesterday futures are suggesting a fall of 2 points on the open when trade kicks off on the ASX today. With no clear guide from the US at present and given it’s a Friday there is every chance traders use the excuse to have a quiet day and head to the weekend early. But if the S&P/ASX 200 can close around these levels it will represent a fairly good week with a solid recovery off Monday’s lows.
- Yesterday’s jobs data was just awful. Not so much in the loss of 9,800 jobs (which was disappointing) but in the big swings in full time and part time and the ABS comments about the sample rotation in Queensland which renders this series almost redundant. Of course the ABS knows this. It’s why they have switched to talking about trend data before it publishes the seasonally made up, sorry adjusted, data these days. But if the statistician doesn’t have faith in his data then he should stop publishing it.
- The reason I say that is because decisions are made on that data. Decisions about business investment, consumption, saving, job security, and – heaven forbid – interest rates in the economy and the value of the Australian dollar. Yesterday’s data was a miss, that happens. And it was so bad that if you were trading Aussie it was clear the foray above 77 cents was about to end. But the Aussie has been hammered relative to everything else in forex land simply because Australians statistician releases incredible, un-credible, data.
- Of course the AUD/USD was a risk because of the starting point above 77 cents. But that doesn’t change the fact the ABS should either fix the data set or simply tell the government and the markets it is only publishing trend data from now on.
Forex
- Mario Draghi’s comments about QE and the lack of taper discussion at this meeting helped knock the Euro below the recent range low and it is sitting at 1.0935 this morning after falling to 1.0916 overnight, just 10 points above the Brexit low. It’s incredible that Draghi says the board (governing council) didn’t discuss something that is on the horizon. I just can’t believe that a functioning and efficient board would not have discussed their strategy fr such an important pillar of their current strategy when its expiry is now under 6 months away. That’s not a credible proposition.
- Which makes what Draghi said all the more powerful, pointed, and clearly aimed at financial markets and the Euro. Going forward if 1.09 breaks the next support is 1.0780
- Draghi’s comments helped push the Investing.com USD Index up to another post March high. It’s at 98.31 at the moment.
- USD/JPY is a little higher once again back just under 104, the Canadian dollar has lost 0.84% with the selloff in oil with USD/CAD at 1.3221 while the NZD/USD is at 0.7192.
- Looking at the Aussie and the combination of pre-jobs strength, thin air above 77 cents in the supply zone, and then a truly awful print have knocked the Aussie back the best part of a cent from where it was around 8am yesterday.
- Weak data and a trendline = selling. Here’s the chart.
Commodities
- Gold is back from the recent foray into the mid-1270’s and sits at $1266 this morning while Copper is at $2.09 a pound.
- But it’s oil where the action is after a false break and marginal new post-June high gave way to heavy selling. No doubt comments from Rosneft boss Sechin that Russia could raise output didn’t help prices but the World bank has upped its forecast for 2017 crude to $55 a barrel from $53 a barrel. Reuters reports “"We expect a solid rise in energy prices, led by oil, next year," said John Baffes, senior economist at the World Bank."However, there is considerable uncertainty around the outlook as we await the details and the implementation of the OPEC agreement, which, if carried through, will undoubtedly impact oil markets."
- And it’s that uncertainty, a bit of US dollar strength, and some positions being squared after traders got caught the previous day which has oil lower this morning.
- Crude Oil is off 2.27% at $50.43 and Brent Oil is off 2.77% to $51.21. Interestingly, as is often the case on big moves – last night/this morning is the expiry day for the front Nymex contract.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Visitor Arrivals (YoY) (Sep) (9.45am)
- China - Nil
- Japan - All Industry Activity Index (MoM) (Aug) (3.30pm)
- Germany - Nil
- EU - Consumer Confidence (Oct) (1am)
- UK - Public Sector Net Borrowing (Sep) (7.30pm)
- Canada - Retail Sales (MoM) (Aug), Retail Sales ex Autos (MoM) (Aug), Consumer Price Index (MoM) (Sep), Bank of Canada Consumer Price Index Core (YoY) (Sep), Bank of Canada Consumer Price Index Core (MoM) (Sep), Consumer Price Index - Core (MoM) (Sep), Consumer Price Index (YoY) (Sep) (11.30pm)
- US - Markit Manufacturing PMI (Oct), Markit Services PMI (Oct), Markit PMI Composite (Oct) (12.45am); Baker Hughes US Oil Rig Count (4am)
Have a great day's trading