Originally published by AxiTrader
Market Summary
Traction.
After the biggest draw in inventories for the year last week with stockpiles down more than 5 million barrels crude oil soared more than 3% overnight as OPEC's production cut looks like it might finally have bitten.
That underpinned energy stocks which were the best performers on the S&P 500 which eked out a 0.11% gain to 2399 thanks to oil. The Dow Jones Industrial Average dipped 0.16% to 20,943 while the Nasdaq 100 just keeps keeping on and is up 0.14% to 6,129.
Stocks in Europe were mostly higher and after a wild day yesterday on the ASX SPI traders have marked prices up 0.2%, 12 points, overnight.
On forex markets the US dollar is is broadly stronger with euro down at 1.0865, the pound around 1.2934. and the USD/JPY rate comfortably above 114 at 114.32 this morning. That bad news for Aussie dollar buyers is that this has kept the pressure on the currency which is sitting at 0.7360 this morning. It's also down in sympathy with the kiwi which dipped after this morning's RBNZ decision.
Elsewhere US 10-year bonds rose to 2.41%, the highest level since late March as Boston Fed president Eric Rosengren said the Fed should both keep hiking and taper its balance sheet this year.
Rising rates is keeping gold on the backfoot and it's at $1,218 while copper and base metals reversed what had been a good day in Asia yesterday and is down at $2.48 a pound.
After yesterday's inflation data in China traders are waiting on the loans data due sometime this week. Also out tonight is the BoE's decision on interest rates.
Here's What I Picked Up - in a little more detail
International
- President Trump's sacking of FBI director James Comey hasn't had too much impact on markets. But we do need to be aware of what's going on because there is a small chance of a significant impact if some larger revelation comes out at some time in the future. But that's one of those unknown and irreducible risks traders face - so we'll just have to face it if it happens.
- More significant for me was the call by Boston Fed president Rosengren for aggressive Fed hikes and the start of the balance sheet taper. He said he doesn't believe that the softness in the economy during the first quarter is "a harbinger of softness in the underlying economy, and the strength of the labor market report on Friday provides some strong confirmation of that view".
- He then went further saying the Fed should be looking at the dot plot expectation of just two rate rises this year. "Along with a gradual reduction in the level of the balance sheet, it would still be reasonable to have three rate increases over the remainder of this year," he said. Three hikes folks plus a taper! I'm fairly sure we'll see ructions in markets with the 10's heading up toward 2.8% and the US stock market under pressure if that happens.
- Speaking of stocks the S&P's rally persists but is stalling as this weekly chart shows. What we have seen so far is a classic break higher from the downtrend channel but I'll be interested to see how we end the week and whether that suggests further gains or weakness ahead.
- China's inflation data yesterday was interesting. The print of 1.1% year on year for CPI was higher than the previous month's 0.9% rise. But it was the dip in PPI to 6.4% which I found interesting. That's a huge number naturally but PPI is showing signs that after 6 months of rising strongly from the depths of defaltion prices might have already peaked.
- That's important for the outlook for the Chinese economy and by extension the globe and Australia. So to will the release of loans dat be. But one thing I wanted to discuss was steel output. Last night the head of the European steel body - Eurofer - said China is genuinely trying to rein in steel capacity buut that this may not actually lead to a fall in production. "I think the Chinese government has a genuine goal of reducing capacity because they subsidise it, its costing them lots of money ... but cutting capacity doesn't mean you cut production," Eurofer president Geert Van Poelvoorde said. "There will be in the next quarters more overproduction in China." So maybe iron ore can hold up for a little longer yet.
Australia
- What a day yesterday on the ASX. We don't trade individual stocks at Axi but it's worth talking about the price action of the CBA as an example of what occurred during the day. Commonwealth Bank Of Australia. (AX:CBA) fell to a low of $79.55 but then bounced more than $2 to close at $81.73. That's an amazing bounce. Interesting for traders it also highlighted - AGAIN - the importance of trendlines and support zones as you can see in the chart below.
- So in the end the S&P/ASX 200 closed up 35 points at 5875 after a wild 72 point range on the day. It's fair to say that the ASX is completely underperforming against the persistance of strength of the S&P 500. But that's why the movements of sub-indexes and big capitalisation players like the banks is so important for those of us who trade the SPI 200.
- Anyway, traders marked the SPI higher last night and a break of 5889 could signal a big move.
Forex
- Euro found suport around the top of the gap higher a couple of week's back in the 1.0820/50 region again overnight. This region has to hold otherwise technically the price could drop to 1.07 maybe even 1.0600/20.
- And while the Euro remains pressured so too does the Yen. It's now at 114.26 and while it's a very steep rally I have no signal that the trend has ended just yet. resistance is in the 115.00/50 region.
- Elswhere it's a big night for Sterling traders with the BoE to release it's decision on interest rates tonight. you'll recall recently that there was a dissent from holding rates steady with one member wanting higher rates and the minutes reflecting other members weren't far from changing thie view if the economy remains relatively healthy.
- This morning the RBNZ left rates on hold and has a neutral stance on the back of fairly quiet inflation. That saw the Kiwi plunge and drage the Aussie down in sympathy. My monthy outlook suggests the Kiwi is on the way to 65 cents. The Aussie also remains under pressure.
Commodities
- The big draw of 5.247 million barrels in the last week announced by the EIA overnight was much larger than the 1.8 million barrels the market had expected. This is exactly what oil prices need to climb back toward $50 a barrel in WTI terms. What's important about this is that as I written the last couple of weeks the draws in crude were good but traders had been focussed on the weakness in gasoline as a sign that demand was not as strong as it should be. Last night the draw on gasoline was again a little on the week side but it's hard to deny the big draws in US inventories in the past month.
- That's something that Westpac Banking Corporation's (AX:WBC) head of research Rob Rennie pointed out in a tweet this morning. He's right.
- And what this does is allow OPEC's jawboning of prices and promise of further cuts to gain traction. Indeed. Reuters reported both Algeria and Iraq are on board with the extension overnight which with the draw in inventories has propelled WTI up above the $47.00/20 region I've highlighted recently. My system is now long and the spike low below $44 might just hold for the moment.
- As I noted in the introduction the rise in US rates and a general lack of concern about North Korea, Syria, and other global risks continues to weigh on the price of gold. It's sitting at $1,218 this morning
Have a great day's trading.