Originally published by AxiTrader
Market Summary
A recovery in the Nasdaq failed to pull the Dow Jones Industrial Average and S&P 500 back into the black overnight. The US dollar was a little weaker and bond markets remain sceptical of the US economic recovery.
The Nasdaq rose 0.75% to 6,233 but the S&P 500 was marginally lower, down around one and a half points to 2,435. The Dow fell 57 points, 0.27%, to 21,410. European stocks were lower as well. But SPI traders are more optimistic and have marked prices 17 points higher after yesterday’s massive 92 point fall on the S&P/ASX 200.
Forex markets were relatively quiet. Sterling was higher after an influential MPC member said he’ll probably vote to hike rates later this year. The Canadian dollar was the other big mover as oil collapsed again. Euro and yen hardly moved while the Aussie dollar has been under mild pressure for about the last 18 hours. It’s at 0.7551 at the moment.
On oil more concerns about the outlook for market balance weighed. WTI and Brent fell more than 2% again. Gold hardly moved but copper, base metals and iron ore recovered.
It’s a bit of a data drought today once we get the RBNZ out of the way.
Here's What I Picked Up (with a little more detail and a few charts)
International
- Andrew Haldane, BoE chief economist and MPC member, reignited the policy debate in a speech overnight saying that he’s likely to vote for a rate hike in the second half of this year. This apparent hawkishness stands in stark contrast to comments the previous day by BoE governor Mark Carney who struck a decidedly more dovish tone. “Provided the data are still on track, I do think that beginning the process of withdrawing some of the incremental stimulus provided last August would be prudent moving into the second half of the year…The first 25 basis-point rise in UK interest rates for 10 years seems like a momentous step. But it would still leave monetary policy highly accommodative by any historical metric,” Haldane said. Central banks have been key this month for bond and forex markets. And Haldane’s comments suggest the BoE MPC remains divided.
- Also on the central bank front BoJ governor Kuroda yesterday reinforced the message that he and the bank see continued need for monetary accommodation. “Our economy is on firmer footing, but we are still distant from our 2 percent inflation target," He said adding “"It is appropriate to keep monetary conditions easy with our current market operations framework.” USD/JPY is down a little on the US dollar’s dip but this reinforces the policy divergence between the two central banks. In a broader sense it also means more money is going to continue to be pumped into the global economy under the BoJ’s QE program.
- US existing home sales beat in May data released overnight showed. That’s helped the Citibank economic surprise index for the US improve marginally from the recent low. But it is still extremely week at -76.5.
- The ECB, in its regular monthly update, said that the risks to the global economy are easing and markets are taking the Fed’s tightening cycle in their stride. But the ECB is worried about the rise of protectionist rhetoric and policies. The bank also said it still has concerns about vulnerabilities in China’s economy, and about the impact of Brexit. Net on net, the ECB concluded “although some risks appear to have diminished, the balance of risks to the global outlook remains tilted to the downside.
- Something else for the Australia doomsayers to fret about. China said yesterday it wants to boost the share of services in its economy to 60% by 2025. That’s consistent with the economic transition authorities in Beijing are trying to engineer and a continuation of the trend that sees services make up around 52% of the economy now. For Australia, it means the relative importance of Australia’s mineral exports to Chinese growth will diminish. But it also opens up other opportunities.
Australia
- Another bad day on the local market yesterday with a loss of 92 points and close at 5,666. The price reversal from above 5830 just last week has been brutal and will have materially impacted sentiment. There isn’t much the energy sector can do given price moves in global oil markets and the battle for valuations in Australia’s financial sector continues.
- But as I noted yesterday this price action, and the underperformance to the US and other global stock market rallies, has me wondering if this isn’t a re-run of 1999. That is, perhaps global investors have just moved on to other opportunities. Whether that’s tech, Europe, or elsewhere that’s the sense I get from watching the price action and the local market’s under performance.
- On the day though SPI traders are betting on a better day ahead. They’ve marked prices up 17 points overnight but given the sectoral breakup of the S&P 500’s moves last night – Energy, Basic Materials, and Financials down – could mean we are in for another weak day.
- There is no data of note so it’s really about sentiment and value today. It should be interesting.
- In SPI terms there is support in the 5580/5600 regions.
Forex
- Central banks are where it’s at this month and Andrew Haldane’s hawkish tone overnight certainly helped the pound which ran up to a high of 1.2709. It’s back at 1.2665 as I write. The low was just 10 points above the 50% retracement level of the recent up move. So GBP/USD could stabilise a little around these levels while we all wait and see how UK data flows in the next few weeks.
- That bounce in sterling seemed to usher in a period of mild US dollar weakness with the US Dollar Index down about 0.2% at 97.57 this morning. That’s still inside that resistance zone I’ve highlighted. It was an inside day and there was virtually no real other material catalyst to trade other than Haldane’s comments. So I won’t over egg it. But the DXY does need to take out yesterday’s high at 97.87 to kick higher.
- A lower US dollar helped the euro lift 0.26% back to 1.1164 while the yen is largely unchanged at 111.38.
- The commodity bloc currencies of Canadian and Aussie dollars were a little more interesting, however. The Aussie is down 0.32% to 0.7552 this morning. That’s off the low of 0.7543 as commodities recovered a little from their lows. For the moment though the Aussie remains a little pressured once again.
- And speaking of pressure, the oil price collapse is hurting the Canadian dollar. USD/CAD is up 0.44% to 1.3320 after briefly breaking the 200-day moving average overnight. That level – 1.3338/48 – is now going to be an important level traders watch.
- The RBNZ announced its decision at 7am this morning. The bank left rates at 1.75%. There was a a risk of a dovish hold, if I can call it that, given the New Zealand dollar is so strong and governor Wheeler did say he's like the kiwi lower. But there was nothing explicit in the statement - so NZ dollar rallied up toward 0.7270/80 resistance. It's at 0.7254 now
Commodities
- Oil was down again overnight as traders search for the true level of support. That fall was despite the EIA reporting a slightly bigger than expected draw in both crude oil and gasoline. Crude stocks fell 2.451 million barrels last week against expectations of a 2.106 million fall. But the narrative has changed and reports this morning are that worries over the imbalance in the market are again dominating chatter.
- Of note, the news of Nigeria is likely to hit 2 million barrels a day of production in August and chat about the impending Chinese refinery cuts combined to undermine sentiment once again. Oil is searching for bottom, it’s a little overextended on the charts in WTI terms, but where the buying will come from is not evident just yet.
- Last night the Iranian oil minister did a little jawboning saying that deeper cuts might be on the cards. But OPEC’s jawboning activities have suffered diminishing returns recently as traders question the efficacy of the current cuts. Naturally, a deeper cut could arrest the price decline. But OPEC needs to actually do it rather than just talk about it.
- Anyway this morning we have WTI at $42.57 down 2.16%. Brent crude is off a little more with a drop of 2.56% sitting at $44.84. Support for Brent is about a dollar below current levels with the November low at $42.18 for WTI the level to watch.
- Gold is still very calm at $1246 an ounce.
- Copper recovered 1.66% overnight and is back near $2.59 a pound. Chat is that the market remains in deficit this year which is continuing to see prices bid on dips recently.
Have a great day's trading.