Originally published by AxiTraders
Market Summary
A night of two halves with the post-May day excitement in Europe giving way to a more tepid reaction on US stock markets. In no small part that could be because UK and EU data was and is printing better than data in the US again overnight.
Anyway, at the close London, Frankfurt, Paris, and Milan all saw gains of more than half a percent while in the US the big 3 indexes were far more subdued. The Dow is up 0.17% to 20949, the S&P 500 rose 0.12% and the Nasdaq 100 was up 0.06% as traders awaited the Apple Inc (NASDAQ:AAPL) results (which seem to have disappointed based on after-hours trading).
The wash up is that after a disappointing day for the bulls yesterday on the local market SPI traders have marked prices down another 5 points overnight.
On forex markets, the bulls had the Aussie under control after the very – very – neutral RBA governors statement yesterday. That was until the pesky reality of overhead resistance got in the way. It’s at 0.7530 this morning. The pound bounced on strong PMI data and is back nicely above 1.29, USD/JPY is near 112, the CAD is getting hammered again and the euro just wants to rally but can’t quite kick on – it’s at 1.0925 this morning.
On commodity markets, oil fell right out of bed and back into the $47’s. It's just climbed out and back above $48 after news broke as I close this report that the Russians are keen on a 6-month extension to the production cut. Nothing like surging US production to take the wind from those sails though. Gold fell below $1250 but bounced back above the 200 day moving average and copper dipped back after the previous days surge.
Today we get NZ employment, EU GDP, US ADP employment data, Services PMI’s and of course tomorrow morning the FOMC statement.
What You Need To Know (with a little more detail and a few charts)
- S&P 500 +3 (0.12%) 23914 (7.20 Sydney - change since previous day)
- Dow Jones Industrial Average +36 (0.17%) 20949
- Nasdaq 100 +4 (0.06%) 6,095
- SPI 200 -4 (0.06%) 5,930
- AUD/USD 0.7532 +0.17%
- Gold $1256 Flat
- WTI Oil $48.07 -1.56%
International
- June is certainly in play for a discussion of a change of strategy around monetary policy for the ECB. Again we heard from the Germans that they hate lose policy with finance minister Wolfgang Schaeuble said ultra-loose policy is “unhelpful”. He added that “It's encouraging undue risk-taking, policy complacency, capital miscalculation and enterprise bubbles and will continue to do so if it is not reversed in time," he added. "In fact it might even raise the risk of another financial crisis”.
- No mincing words there. So Schaeuble will be happy that the ECB’s Ewald Nowotny said in a newspaper interview that the June meeting will “discuss the future strategy, the strategy for the beginning of 2018”. Euro is still only just above 109, but with the data in Europe holding so much better than that in the US at some point we could see a spike.
- We have the Fed to deal with first though. And on that note the FOMC’s two-day meeting began overnight. We’ll know their decision and be able to read their statement this time tomorrow. With the big slip in data recently there is no chance they raise rates but the statement could contain a discussion about the balance sheet taper so many Fed speakers have been talking about recently.
- Here’s something I wouldn’t do if I was a US banker – taunt the president. But that’s exactly what bankers have decided to do – anonymously of course – with Reuters reporting that at the mini-Davos, the Milken Insititutes conference in Beverly Hills, bankers are telling them they don’t take what president Trump says seriously. Now I know that fits the narrative around the president many like to believe, and while I’d be surprised if the trump administration does actually seek to break up the banks, it seems to me goading the president leads to action from him. Anyway, something to watch because it's crucial to stock market, and thus global market, sentiment.
- It looks like Emmanuel Macron has increasingly got a lock on the French presidency. While the candidates threw barbs at each other and protestors clashed with police on the Streets Madame Le Pen was caught nicking a quoted – 1 minute and 20 seconds worth – from her former rival Francois Fillon. If a shock does actually eventuate worth noting Le Pen also said she is still commited to giving France back the franc and that capital controls may be needed during the transition.
Australia
- A 6 point dip on the local market yesterday when folks were talking about an assault on 6,000. That likely caught traders by surprise with the banks under a little pressure with the ANZ results the catalyst. That’s important given they make up 25% of market cap roughly in the S&P/ASX 200.
- 6,000 is only a stones throw away from where the ASX is right now. And it would only take one decent size asset allocation move into the market to get the index trading at that level. Structurally though I believe the ASX needs more gains on US markets to lift higher. So with the CBOE Volatility Index at multi-year lows, earnings of 12.5% year on year for Q1 baked into the cake, weakening data, and the trump Tax plan coming but in the ether that catalyst may be absent. It doesn’t mean the markets will collapse. But the ASX needs the S&P to rise to lift it sustainably higher. Here's the chart:
Forex
- The pound is higher this morning after a stonkingly good manufacturing PMI print of 57.4 up from 54.2 last month. Likewise the euro is stronger after it had a good night of data. Euro is in its post first round French election range and the next shoe to drop and potential driver outside that range will come the FOMC statement tomorrow morning.
- I love trendlines and the Australian dollar’s rally ran headlong into the top of the downtrend channel yesterday after the RBA but couldn’t get through. That’s important because the language of the RBA was very neutral and suggests a high hurdle to another rate cut. So the bulls had the hot hand. Except of course that technicals do matter and the high was bank on resistance. AUD/USD is at 0.7530 this morning.
- USD/CAD is getting pummelled still. I don’t write a lot about the CAD but I watch it every day as an important member of my “dollar bloc” club with the Aussie, kiwi and associate members the South African rand and Brazilian real. Anyway, USD/CAD hit another 14-month high last night and is at 1.3170 presently. I’m waiting for a signal of a potential turn.
Commodities
- My I love trendlines II example for the day is oil. WTI broke the trendline from the November low last night and collapsed to a low of $47.33 – just 25 cents or so above the lows for the year just north of $47. WTI is at $47.64 now, down 2.64%, while Brent crude is off a little more than 2% at $50.45.
- On the fundamental front the mixture of news showed that OPEC’s strong compliance with agreed cuts was more than offset by news Libya is ramping up production again and US production is likewise still climbing. So OPEC needs to agree a production extension if they want to see prices move higher and back above $50 a barrel.
- And my I love trendlines III example is gold. Prices fell below the 200 day moving average before bouncing off the bottom of the current trend channel I’ve drawn in from the $1295 recent high. It’s at $1256 at the moment. Still not out of the woods but protected by stocks mild slip in the US and the 10-year bond staying below 2.30% in the US.
- Copper is lower this morning down around 0.85% after the knee jerk reaction to the announcement of the strike at the Grasberg mine unwound a little. We’ve been to this rodeo before folks - $2.82 was the high when the Escondida strike news hit the market.
Have a great day's trading.