Originally published by AxiTrader
Market Summary (6.38am Tuesday May 8)
Buy the rumour, sell the fact?
That’s the question this morning as oil dips back from its overnight and 2018 highs now that President Trump has tweeted that he will announce his decision on the Iran nuclear deal from the White House at 2pm tomorrow – 4am AEST.
Before the pullbacks though Brent surged and WTI was higher as well. Both are now about $1 off their highs at $75.33 and $69.82 respectively. If it is buy the rumour sell the fact and if President Trump does leave the door open to a new deal then oil could fall quite a few dollars.
We’ll know tomorrow and in broad trends the trend is still firmly up.
Elsewhere, the US dollar is a little firmer again. Weak data in Europe – again, yes again – saw EUR/USD slip below 1.19 briefly overnight. But such has been the pace of the US dollar move in the past week or so and with important support around 1.1900 the euro bears seem a little exhausted and euro sits at 1.1922 down 0.3%. The yen is largely unchanged with USD/JPY sitting at 109.04 while the pound is a little firmer at 1.3559 after slipping below 1.35 at one point last night.
Of the commodity bloc the Aussie dollar and Canadian dollar fared worst losing around 0.35% apiece with AUD/USD at 0.7512 and USD/CAD at 1.2892. The kiwi is largely unchanged at 0.7013.
But it’s emerging markets FX, something I don’t talk about too often, which is where the real action is right now. It’s always easy to get into a relatively illiquid trade and always a magnitude more difficult to get out of same. So the US dollar’s “surprising” – to those that don’t read this note – has caught many on the hop. Argentina and Turkey are among the hot spots. But it’s broader than that. Indeed the JP Morgan EM FX index is at a 52 low.
Watch that space folks if the China US trade tension kicks into something more troublesome – as it might given last week's meeting.
To bonds now and US markets – not emerging ones – are fairly calm right now with the 2-year at 2.50% and the 10-year at 2.95%.
On stock markets it’s been a positive night in the US and Europe which means the SPI 200 has added 18 points to 6,082. Whether or not that gain will be sustained in trade today is an open question given the last couple of days trade – and associated candlesticks for the S&P/ASX 200.
US markets were buoyed by Apple (NASDAQ:AAPL) in particular. But it’s worth noting the S&P 500 remains trapped inside the 100-200 day moving average envelope it’s been trading in for most of the past month with last night’s high the 100 day ma. In the end though the S&P closed 11 points off its high, up 0.34% at 2,672. The Dow rose 0.39% to 24,357, and the Nasdaq was 0.78% higher at 6,821. In Europe the DAX was 1% higher.
To other commodity markets and gold is largely unchanged at $1313, copper is at $3.05 down 0.38% mapping the Aussie’s moves.
On the day ahead we have the release of the Federal Budget tonight. But before that we have the latest update on the health of consumers and the household sector with the release of the March retail sales report. The market is expecting growth of 0.3% on the month according to the Reuters survey while the quarterly data is expected to show an increase of 0.6%.
Chinese trade is out and it will be interesting to see if it shows some weakness – especially after the big miss in German factory orders which fell 0.9% not the 0.5% gain forecast. German trade and industrial production is out tonight and in the US we get the NFIB business optimism index.
Here's What I Picked Up (with a little more detail and a few charts)
International
- Here’s a chart of the S&P 500 showing it trapped between the 100 and 200 day moving averages. There is both a bull case and bear case to be made here for the S&P as it wedges itself toward resolution. We’ll see which side it breaks.
- The German economy has been dipping back lately. But last night’s factory orders was a big miss to the downside. Orders from offshore are falling and that doesn’t bode well for overall global growth as this tweet from Sri Thiruvadanthai of the Jerome Levy forecasting institute highlights.
- And speaking of US growth check out this tweet of S&P sales growth over the past year from Pension Partners Charlie Bilello. Says everything you need to know really about the US economy.
- I didn’t write too much about the trade talks in China which ended over the weekend yesterday. Suffice to say though it seems there is little misunderstanding between the two parties that the gulf between them is wide and a deal seems less likely than I think the market has priced. A senior Chinese official is coming to Washington for talks. But the demand for a $200 billion reduction in the trade deficit and the reality that this is a fight over primacy in technology in the decades ahead means this is not done yet. The chances of more sanctions, and an escalation of same, seem to have increased.
- The ECB is worried and said again overnight that an escalation in trade tensions could derail the recovery in global trade. No wonder the Sentix survey released last night showed that investor morale in the Eurozone has fallen.
- And while I’m on the ECB, Belgian central banker Jan Smets said the ECB is still likely to phase out the QE program over summer.
Australia
- The break above the February high for the SPI 200 is still holding. At least for the moment after a couple of very interesting candles over the past few days. While the local markets surge to post January highs over the past month was largely independent of the moves in US and other markets the reality is that now the ASX200 (and the SPI) is back in the zone of the 2018 highs it really needs US markets to kick on to sustain higher prices it seems. In the mean time a break back below 6058 or above 6092 is likely to get things moving.
- The Australian dollar is down again but still holding above last week’s lows. The budget could be a mild and incremental positive for the Aussie later tonight. But the release of retail sales and then Chinese trade are the big events in our time zone today. The stall in the US dollar’s rally, or at least the fact that pound and euro were able to bounce back from the lows is an encouraging sign overall for the Aussie bulls. But, the reality is the AUD/USD is trapped between a 0.7470 and 0.7560 range at the moment and only a break either side of that will move the needle on sentiment.
- The NAB Business survey shot the lights out again yesterday. In a clear sign that maybe business doesn’t need the tax cuts Treasurer Morrison has been trying to get through the survey for April showed that conditions bounced back to 21 while confidence stood at 10. Trading is through the roof at 28, profitability is at 22, and employment is at 13. WOW, WOW, WOW. Seriously folks if the business sector really is this strong then it can’t be long surely till that washes into better wages and many more jobs – surely. This is a very robust outlook.
Forex
- In a world where the US is the standout in terms of growth and where other nations are slipping while US growth remains solid the US dollar should continue to strengthen. For example the CESI for the EU is now at -100.1 while in the US it sits at +28.6. That US print for its CESI is still lower than a month ago but the spread between the two economic regions continues to widen in favour of the US dollar.
- And as I have oft written lately, it really is only China and the US which are still printing positive data surprises as measured by these Citibank economic surprise indexes. Although, it is worth noting the Australian versions has climbed off the mat recently and is only just in the negative column at -1.9 this morning. That’s from -49 just three weeks ago.
- The wash up is that for the moment the US dollar is still rising but the pace of the move has stalled. As I highlighted above the fact that the euro and pound were able to rally off their lows shows a little bit of US dollar bull exhaustion and perhaps the need for consolidation. The way I’m playing it is that I’m expecting a decent retracement of the US dollar move as a second leg or wave of the move before the big one starts. In the meantime, though I am expecting a consolidation as I’ve been suggesting in recent days in in my videos.
- In that vein today’s chart is of the consolidation in USD/CAD. A break of that little box is likely to be a lead indicator for other pairs.
Commodities
- Oil has raced higher recently on the back of concerns that president Trump will exit the US from the Iran nuclear deal and that this would then lead to a further deterioration in the situation in the Middle East not to mention the disruption to oil supplies of Iran’s production. Throw in a crumbling Venezuelan infrastructure and new sanctions announced last night and we had a perfect storm for higher prices.
- But oil is still oil, markets are still markets, and technical levels are still closely watched. So it’s worth pointing out that WTI reversed off the top of the current uptrend channel it is in at the moment. Clear the uptrend is still intact. But the chart below shows the magnitude of a possible pullback if WTI falls back through $69.50…$66.50/67.00 would be in the frame once again. The next 24 hours are going to be very interesting for oil traders.
Have a great day's trading.