Originally published by AxiTrader
Oil is down as OPEC’s shenanigans and arguments continue just a day before the all-important meeting. That’s knocked oil futures 4% lower in overnight trade. Copper and other metals have gone out in sympathy as well falling from elevated levels.
But stocks aren’t phased at the moment. With the big 4 indexes all higher this morning. Data in the US was solid with good prints for both consumer confidence and GDP overnight. That’s helped the US dollar get its mojo back against the Euro, Yen and much of Asia. But commodity currencies and Sterling are holding in relatively well all things considered.
Here’s a bit more detail of what I picked up.
International
- US stocks are had a mildly positive night and US treasuries are fairly quiet as the focus remains in oil markets.
- The second read of US Q3 GDP was out last night with growth being upgraded from the relatively strong 2.9% annualised to very healthy 3.2%. Driving this growth was a solid surge in consumer spending of 2.8% during he quarter.
- Doubling up the positive consumer news was the release of consumer confidence which hit a nine-year in November. The data, which was taken after the US presidential election, printed 107.1 up from 100.8 and much better than the 101.5 the pundits were forecasting. Consumers report current conditions lifted to 130.3 from 123.1 while expectations for the next six months lifted to 91.7 from 86.
- That is unequivocally strong data and a solid response to the Trump victory. It also suggests a strong non-farm payrolls this Friday night could have the impact of increasing Fed expectations of the number of rate rise FOMC members will be forecasting for 2017. I still think the market is under pricing the risk of 3 or maybe even 4 hikes next year.
- The Fed’s Jerome Powell has already released the text of the speech he will deliver later this morning and it it he backs a rate hike for December.
- The ECB is ready to buy Italian bonds if the referendum result destabilises EU markets and Italian banks in order to support the economy.
- Speaking of Europe German inflation was unchanged in November at 0.7%. AND EU economic sentiment inched higher from 106.4 to 106.5 in October the EC said overnight. That was below the 107 forecasters were guessing at.
- SAFE, the Chinese forex regulator, said Tuesday it is tightening controls to stem capital flows. It will now scrutinise all transactions sending money abroad of $5 million or more.
- Also out yesterday was PBOC advisor Fan Gang who wrote in a newspaper editorial for the financial newspaper China Business News that the Yuan will ultimately begin to appreciate once again. Reuters reports Fan said that considering China will grow almost twice as fast as the United States, and that China's inflation will be less than that of the US, "the long-term trend of the yuan versus the dollar is for steady and slow appreciation".
- He added, “The question you should be asking is 'Will the dollar keep rising? It's already risen so much, will it soon decline?'...In a few days you may found that you changed too much into dollars”. Not yet certainly but longer term who can argue.
- The President of South Korea has announced she’ll step down after the corruption scandal allegations.
Australia
- A quiet day for the ASX 200 as that overhead resistance remains strong. Yesterday the local market dipped 7 points for a tiny 0.13% loss and a close at 5457. Nothing exciting by way of catalysts at an index level. That said the miners were under pressure again which just suggests that like Shanghai metals yesterday, traders are taking a little profit and thinking about longer term valuations.
- Looking at the day ahead the US market performance is good for the atmospherics around the market today. So the futures traders on the ASX have the SPI 200 up 6 points this morning. BUT the key to me is this trendline in the physical market that has contrained trade over the past week.
- Recall it stretches back to the 6000 highs in 2015 – here’s the chart again.
- I negated to mention the advice from the OECD for the RBA the other night. The organisation said the RBA will be raising rates in 2017 but concerns about the housing market instability mean the RBA should not lower rates again even if economic activity dips. Rather the OECD said the government should step into the breach and use fiscal policy. Interesting.
- You can see the end of the housing construction boom just over the horizon it seems with the HIA reporting new home sales fell 8.5% in November to their lowest level in 2 years. But consumer confidence stayed on the right side of the long run average according to the ANZ – Roy Morgan weekly survey. At 115.4 it’s down from the September peak of 121.8 but still relatively healthy.
- Today we get private sector credit and Building approvals. The latter might be interesting in context of the HIA data yesterday.
Forex
- The data in the US last night underlined very strongly the divergence in policy we are likely to see between the Fed and the rest of the globes central banks over the next 6 months and beyond. That naturally helped the US dollar because interest rate and growth differentials matter to forex traders and currency pair valuations.
- It’s on its highs here against the euro at 1.0642 this morning, but USD/JPY at 112.49, while higher, is way off the overnight high of 113.33.
- USDJPY looks like it is forming a short term top. But the price action reminds me very much of copper. My system is short and the initial target is 110 at the moment. But longer term interest rate/bond differentials suggest a price move back toward 120/125. Here’s the chart.
- The Aussie made a marginal new high for this run in trade yesterday hitting 0.7497 from the previous days 0.7493. At 0.7480 this morning it’s still hanging tough but largely unchanged on the last 24 hours. The kiwi is doing well at 0.7125 and the Canadian dollar has had a remarkable night with USD/CAD only 0.6% higher at 1.3417 even though the oil price collapsed. It retested the trendline it broke down through almost perfectly in the past 24 hours and rejected the up move. A break below 1.3370 would be decisive.
Commodities
- The closer we get to the meeting of OPEC members it seems the further we get from a deal being done. The Saudis want Iran to cap production around 300,000 barrels a day below where the Iranians have offered as a cap – that’s about $13.5 million in revenue per day at the current price of $45. But it’s not about oil anymore, it’s not about shale oil, it’s about the geopolitics of the Middle East.
- Which means what the Indonesian energy minister said overnight in Vienna is spot on. Ignasius Jonan told reporters "the feeling today is mixed…I don't know. Let's see."
- Cleary traders don’t know either. If you zoom out to a weekly view of the price of oil since May you see Crude Oil has traded a roughly $39-51 range. So $45 a barrel where we sit this morning is right in the middle of the range.
- That suggests to me that we could see a very big move in either direction depending on the outcome of the meeting. Perhaps $3-5 a barrel by this time tomorrow morning.
- Gold is becalmed at the moment – traders have bigger fish to fry right now and US 10 year Treasury yield stabilisation has to a certain extent lifted the foot off gold.
- Copper was down along with many other base metals in the past 24 hours. It fell 2.32% to $2.596 a pound.
Today's key data and events (all times AEDT)
- Australia - HIA New Home Sales (MoM) (Nov), Private Sector Credit (MoM) (Sep), Private Sector Credit (YoY) (Sep), Building Permits (YoY) (Oct), Building Permits (MoM) (Oct) (11.30am);
- New Zealand - Building Permits s.a. (MoM) (Oct) (8.45am); ANZ Business Confidence (Nov) (11am);
- China - Nil
- Japan - Capital Spending (Q3), Industrial Production (YoY) (Oct), Industrial Production (MoM) (Oct) (10.50am); Annualized Housing Starts (Oct), Construction Orders (YoY) (Oct), Housing Starts (YoY) (Oct) (4pm);
- Germany - Retail Sales (YoY) (Oct), Retail Sales (MoM) (Oct) (6pm); Unemployment Change (Nov), Unemployment Rate s.a. (Nov) (7.55pm); 30-y Bond Auction (n/a);
- EU - Consumer Price Index - Core (YoY) (Nov), Consumer Price Index (YoY) (Nov) (9pm)
- UK - Gfk Consumer Confidence (Nov) (11.01am); Mortgage Approvals (Oct) (8.30pm)
- Canada - Raw Material Price Index (Oct), Industrial Product Price (MoM) (Oct), Gross Domestic Product Annualized (QoQ), Gross Domestic Product (MoM) (Sep) (12.30am)
- US - API Weekly Crude Oil Stock (8.30am); MBA Mortgage Applications (Nov 25) (11pm); ADP Employment Change (Nov) (12.15am); Core Personal Consumption Expenditure - Price Index (MoM) (Oct), Personal Consumption Expenditures - Price Index (YoY) (Oct), Personal Consumption Expenditures - Price Index (MoM) (Oct), Personal Income (MoM) (Oct), Personal Spending (Oct), Core Personal Consumption Expenditure - Price Index (YoY) (Oct) (12.30am); Chicago Purchasing Managers' Index (Nov) (1.45am); Pending Home Sales (YoY) (Oct), Pending Home Sales (MoM) (Oct) (2am); EIA Crude Oil Stocks change (Nov 25) (2.30am); Fed's Beige Book (6am)
Have a great day's trading