Originally published by Rivkin Securities
President Trump on Wednesday backed away from his campaign rhetoric to label China a currency manipulator. In an interview with the Wall Street Journal Trump stated “they’re not currency manipulators” resulting in a +0.24% strengthening of the Chinese Offshore yuan. The change in policy should certainly ease concerns over the protectionist stance of the Trump administration that should benefit emerging markets in general. However it also continues to raise doubts about the administration’s ability to deliver on campaign promises, which include the all-important pledge for tax reform.
In the same interview Trump also stated that he felt the US dollar was too strong which caused the US Dollar Index to drop -0.61% on the chart below. That sent spot gold +0.95% higher taking the precious metals two day gain to +2.54%. Usually Presidents tend to refrain from comments around the currency, instead leaving it to the Treasury Secretary. It’s too difficult to say whether this is a shift in policy away from the stance that a strong dollar is good for America or just another off-hand comment by Trump, so I wouldn’t place too much emphasis around those comments.
US equities traded lower with bond yields, as the S&P 500 declined -0.38%, as did both the Nasdaq 100 and Russell200 down -0.40% and -1.29% respectively. Both the two and 10-year treasury yields declined -3 and -5 basis points respectively with the US ten-year yield now below the 2.30% support level over the past three months. Over the past few weeks markets have been guided by geopolitics, while these issues will remain on the mind of investors, tonight we will begin to see a shift towards focusing on US Q1 earnings with heavy weight financials JP Morgan and Citigroup (NYSE:C) reporting tonight. Overall expectations are for combined year-on-year earnings growth for S&P500 companies of +10.1%.
Oil prices declined overnight despite a larger than forecast decrease in U.S. oil inventories ending April 7th. Inventories declined 2.166 million barrels compared with estimates for a 1.5m decrease and both gasoline & distillate inventories also dropped more than anticipated, down -2.973m and -2.153m respectively. One reason cited for the decrease in prices was a 276k barrel build in Cushing crude inventories, the delivery point for WTI crude. This was higher than the 100k forecast which signals increasing domestic production.
I would also cite technical levels, with prices around 11% over the past month the price may have run too far too fast with the second chart below highlighting the price having moved up towards resistance between US$52-54 per barrel along with the overbought nature of momentum indicators pointing to the risk of a pause or pullback in the near-term.
Locally the S&P/ASX 200 edged modestly higher, up +4.68 points or +0.08% at 5,933.96. However this morning we look set to open lower with ASX SPI200 futures down -31 points in overnight trading. We’ll also get unemployment data released at 11:30am Sydney time with the unemployment rate expected to remain unchanged at +4.9%.
Data releases:
· Australian Unemployment Rate (MoM Mar) 11:30am AEDT
· German Consumer Price Index (MoM & YoY Mar) 4:00pm AEDT
· US Producer Price Index (MoM & YoY Mar) 10:30pm AEDT
· University of Michigan Confidence Survey (MoM Apr) 12:00am AEDT
· U.S. Baker Hughes Rig Count (Apr 14th) 12:30am AEDT
Chart 1 – US Dollar Index Futures
Chart 2 – WTI Crude Oil
Source: Rivkin, RivkinTrader