Originally published by AxiTrader
Market Summary
US stocks were a little higher this morning after James Comey’s prepared testimony was released. That it seemed not to provide any further destabilising revelations was taken positively by stocks and even the US dollar caught a little bid.
So at the close the S&P 500 is up 4 points to 2,433, the Dow Jones Industrial Average has risen 37 points to 21,173 and the Nasdaq 100 is 22 points higher at 6,297.
It was a very different story in the UK where pre-election jitters seemed to chase the bulls out of the market with the FTSE 100 falling 46 points, 0.62%, to 7478. That impacted the tone on the continent with markets also lower.
On forex markets the euro is kind of flat but that belies the intraday moves as traders grapple with what the ECB might do and say in its the interest rate decision tonight. Sterling is higher as traders seem comfortable Mrs May will win, or that at least there won’t be a hung parliament whoever prevails. The yen is a little weaker and the Aussie dollar has held onto it gains again overnight. It’s off the high but at 0.7552 the buyers remain in the ascendancy.
Oil collapsed after traders were blindsided by a bulid – yes build – in inventory levels of more than 3 million barrels last week. That saw WTI lose 5% and Brent drop 4%. Gold is lower as it backed off long term resistance and copper is largely unchanged.
The washup is SPI traders have marked prices down another 10 points this morning.
Today in Australia we get the April trade data. China also releases its trade data, as does France. But it’s the ECB and UK election which are the important points traders will be watching in the next 24 hours.
Here's What I Picked Up (with a little more detail and a few charts)
- S&P 500 2433 -+4(0.16%) (7.41 Sydney - change since previous day)
- Dow 21173 +37 (0.18%)
- Nasdaq 6,297 +22 (0.36%)
- SPI 200 5,654 -10 (0.18%)
- AUD/USD 0.7547 (+0.5%)
- Gold $1286 (-0.54%%)
- WTI Oil $45.78 (-5.0%)
International
- James Comey’s testimony has been released and while I haven’t read the whole thing press reports seem to suggest there is nothing unexpected in it. That’s helped the dollar and stocks as traders bet that there is now less potential for any new revelations to cause further trouble for president Trump.
- And speaking of the president he sought to move things along a little by announcing Comey’s replacement as FBI boss. His pick, Christopher Wray, is a former assistant attorney general under president George W Bush between 2003 and 2005. Oh, and the ABC reported this morning that the president has directly intervened in the Qatar isolation speaking to the Emir to try to resolve things.
- And while I’m in the Middle East suicide bombers staged an attack on Iran targeting the parliament and a memorial to the founder of the Republic Ayatollah Khomeni overnight. It’s been claimed by IS and the Iranian Republican Guard have blamed the Saudis. Worth watching for geopolitical risk in the region and oil prices.
- Some good news on the economic outlook front with the OECD upgrading its outlook for the global economy in 2017 and 2018. The organisation upgraded the 2017 forecast to 3.5% from March’s guesstimate of 3.3%. If correct that will make 2017 the strongest year of global growth since 2011. The OECD is expecting growth of 3.6% in 2018.
- The latest polls a day before the UK election seem to suggest that Theresa May’s conservatives will be comfortably returned to power.
Australia
- Consumers spending more of their income and saving less plus a build in inventory levels seems to have kept the wolves from the door when it came to Australia’s Q1 GDP release yesterday. The 0.3% growth rate continued Australia’s epic period without a recession to a world record 103 quarters – equal with the Netherlands. But the annual growth rate of just 1.7% is the lowest growth rate since the GFC.
- The breakup and the make up of growth bears watching because it plays straight to the heart of my concerns about the economic outlook. Consumption rose most in the non-discretionary sectors and fell in discretionary sectors. That almost screams “household pressure” in a world of low wages growth.
- Indeed the population adjusted GDP – per capita growth - fell by 0.15% last quarter with a year on year growth rate of just 0.2%. So it’s immigration that is a large driver of growth. We know that, or knew it. But the key here is it helps explain why Australia can be growing but consumers still feel assailed. If Australia were a company it would have awful same-store sales growth.
- Anyway, the data didn’t give traders on the ASX much of a guide and stocks finished flat at 5,667 yesterday. Importantly prices haven’t, or weren’t, able to get up and through the resistance region at 5,680 which was previously support. My sense is a lot of psychological damage has been done to the bull case with the big fall in stocks recently and as I say above – as a company Australia has pretty poor metrics.
- Overnight SPI traders have marked prices down another 10 points which is likely a reflection of the weakness in gold and oil overnight. My sense is prices will need to best 5,680 then 5,720, and trade above 5,720 before the bulls have more confidence to return. When I look at my charts while below these levels the SPI, and ASX, are biased lower.
Forex
- Even though the euro is largely unchanged against the US dollar it had a wild ride overnight after news broke suggesting the doves are still likely to be in the ascendancy at tonight’s ECB meeting. Bloomberg and Reuters reported that sources had revealed that the forecasts for growth would be nudged a little higher but crucially also that the inflationary outlook would be nudged a little lower. The mooted cut of the inflation forecast for the next three years to 1.5% likely reflects recent comments from Mario Draghi and his chief economist which acknowledged the pick up in growth but reinforced because inflation remains quiet it is too early to change policy.
- Given euro is so close to the US election night high and that expectations had been building for a shift in rhetoric this suggests there is room for disappointment of the euro bulls when the ECB announces its decision and releases its statement tonight.
- The parameters are pretty clear for a move. Euro needs to break up and through 1.13 to kick higher while a move below the overnight low at 1.1204, call it 1.12, would open the way for a reversal lower.
- Sterling is looking good at 1.2945/50 as traders prepare for a Conservative win at the UK election tonight. At least that seems to be the emerging wisdom as we head to the finish line and the latest Panelbase poll shows the Conservatives up 44% to Labour’s 36%. The overnight comments from the OECD that Britain will end up leaving the EU without a deal would normally have hurt the pound but the election takes precedence. We’ll know the results after lunchtime in Asia tomorrow and for me the key seems to be that anything other than a hung parliament is likely to be taken positively by forex traders.
- In price action terms the 1.3050/60 region - multiple Fibonacci resistance - will be key. A break up through there would open up a move toward 1.3400/10. A break below 1.2830/40 - the recent low - opens 1.2660/80 and then 1.2580.
- Elsewhere USD/JPY was a little higher as stocks rose a little and gold dipped. Like the ECB rumours are now floating in Forex markets that the BoJ will also upgrade the economic outlook but downgrade the inflation outlook. USD/JPY is at 109.81 as I write.
- The Aussie is at 0.7546 and remains well bid this morning after yesterday’s GDP release. But it is off the highs of 0.7566. Trade today will be interesting but in price action terms as long as the AUD/USD stays above the 0.7527/37 region which holds the 200 day moving average and the 50 retracement of the March/May fall the bias remains higher.
- Oil’s collapse hurt the Canadian dollar while the kiwi is largely unchanged.
- Chinese forex reserve data released last night showed an increase to a 7-month high of $3.054 trillion as the US dollar weakened and China successfully locks down capital flows. This is positive for China’s economic transition because by stemming outflows authorities have taken away a distraction to their main game of trying to reform the economy and chase out the more speculative elements while also providing enough liquidity to manage the economic transition toward a more mature, consumption based, economic model.
Commodities
- My contention that movements in the price of oil, and perceptions of the efficacy of the OPEC production cut, would be driven by inventory levels came into sharp focus overnight with a big miss in the EIA stockpile data. That saw both WTI and Brent to collapse around 5% and 4% respectively.
- The EIA reported that both crude oil and gasoline inventory levels unexpectedly rose in the week ending June 2. Crude stockpiles were up 3.3 million barrels against an expectation of a draw of 3.25 million barrels. Likewise gasoline stocks rose 3.3 million barrels against the estimate of a 50,000 draw.
- So the recent lows in the $46.70/90 region gave way very quickly in WTI with prices now at $45.80 a barrel while Brent is at $48.14. It’s hard to see what might turn oil around as we head to week’s end. Any chat of more OPEC cuts is likely to fall on deaf ears should they be made because the point of the cuts is to lead to a supply deficit which will cause inventories to fall to the 5 year average. At present inventories are still at the top of that range. The unexpected increase in inventories last night will worry the bulls. It might be a one off, but we’ll need to wait another week to find out. And that suggests this fall in oil is not down yet. $44.50 is the base of the current downtrend channel and may provide some support.
- Oh and it’s worth noting Nigerian oil production is now pretty much back to full capacity with BP (LON:BP) announcing overnight it was lifting force majeure on its operations in the country.
- Gold is down $10 from the previous night’s high at $1286 as traders back off from the long term trendline and resistance zone. Stocks a little higher in the US, the fact that James Comey’s prepared testimony is out and largely as expected, a stable US dollar, news that president Trump has been on the phone to the Emit of Qatar to try to help sort things out, and the overhead resistance are all working to keep gold capped for now. Longer term, the $1295/1305 region needs to break to kick gold substantially higher.
- Copper is becalmed at the moment and base metals are mixed with Aluminium a little higher but tin, lead, and nickel all sharply lower.