Originally published by AxiTrader
Quick Recap
Stocks and the pound are lower as Britain signals the date for what looks like a hard Brexit starting in 2017. Bonds are a little higher after US manufacturing PMI bounced back into expansion territory and the AUD/USD looks strong as we await Phil Lowe's first RBA statement as governor after today’s board meeting.
Crude Oil has broken the neck line of a reverse head and shoulders while gold has slipped below the uptrend from the lows in December 2015
What You Need To Know
International
- I’m going to kick off with geo-politics because it looks like Russian President Vladimir Putin is trying to exploit a potential leadership vacuum in the US in the months ahead. Last night we heard that he has suspended the agreement with the US over the reduction in nuclear warhead usable plutonium signed back in 2000. Putin declared the US to be acting in an unfriendly manner towards Russia, which he said posed a “threat to strategic stability”. Andrei Frolov, a defense specialist at the Moscow-based Center for the Analysis of Strategies and Technologies, told Bloomberg that “From Russia’s point of view, sanctions represent the same threat to national security as nuclear weapons.” Also on the Russia US front the US suspended co-operation with Russia in Syria. Crimea, Syria, Plutonium. What’s next???
- Markets haven’t reacted to this as it is just posturing at present. But it is another example of how unstable the globe has become and is becoming, compared to the situation that existed just a few years ago.
- Now to the market news – and at the close the S&P 500 is off 7 points, 0.31%, at 2161. The Dow is down 0.3% and the Nasdaq 100 is off 0.2%. Bonds are a little higher after the Manufacturing PMI data bounced back into the expansion territory this month after last month's surprise collapse.
- What exactly went on at the last FOMC meeting? It seems like there was more than just a consensus to hold rates firm but also a change of heart about the outlook for the economy from some influential members. Last night New York Fed boss Bill Dudley said the ability of the Fed to cut rates aggressively when the next recession comes means rates can’t really be raised now. “A risk management approach to monetary policy would suggest that the more concerned one is with the effectiveness of these policies at the zero lower bound, the more cautious one would be in the process of removing accommodation” he said.
- Importantly Dudley also asked for more fiscal help as well - "As the expansion failed to gather momentum and persistently underperformed most forecasts, alternative explanations for the sluggish economic growth -- such as secular stagnation -- began to receive increased attention. The insights from this debate have important implications for the appropriate path for monetary policy and the question of whether monetary policy makers need additional tools or greater support from the fiscal authorities,".
- The pound fell after the UK government signalled that Article 50, to launch Britain’s exit from the EU, will be triggered in March 2017. Trying to assuage the fears of many in the UK and abroad, Chancellor of the Exchequer Phillip Hammond said he’d give the UK economy and 8 out of 10. I wonder what Mark Carney would give it.
- It was a holiday in Germany overnight so Deutsche Bank (DE:DBKGn) didn’t trade in Europe. But its US ADR was under pressure again falling more than 2% (at the moment) after fresh news broke over the weekend that the bank is being investigated over dealings relating to Monte Paschi’s account. That bounce partially unwound the positive sentiment that Deutsche Bank, global financials, and risk appetite received when a AFP story that the US DoJ would settle it’s $14 billion claim for the $5.4 DB had allocated hit the wires.
Australia
- With US stocks sliding a little the S&P/ASX 200 looks set to open weaker this morning. SPI traders have the December contract down 21 points at the moment and given every sector of the S&P 500, except industrials which is marginally positive, are in the red it looks like the selling will be across the board. Of course the next 45 minutes of US trade will be an important scene setter.
- It’s the first day that the banks need to front up to parliament to take questions from lawmakers here in Australia on their conduct. The Commonwealth Bank Of Australia. (AX:CBA) is first cab off the rank today and CEO Ian Narev is likely to come under heavy questioning about profitability and banking sales practices given what has happened at Wells Fargo & Company (NYSE:WFC) – until recently one of the most respected names in banking. The troubles at Wells with regard to sales targets seem to have been amplified overnight with reports that Massachusetts securities regulators are chasing a Morgan Stanley (NYSE:MS) unit for encouraging financial advisers into high pressure sales contests keeping the issue front and centre. Westpac Banking Corporation (AX:WBC) CEO Brian Hartzer’s decision to stop front line teller sales incentives looks inspired in the current banking back drop.
- It’s also the first RBA Board meeting that Phil Lowe will attend as governor. That he will be a steady hand on the tiller was established in his recent pronouncements. But there is of course room for some subtle change when it comes to the impact of the Australian dollar, inflation and other variables on the statement that he releases this afternoon at 2pm. There is little chance that he’ll move rates today of course.
- That’s particularly so given that yesterday’s Melbourne Institute monthly inflation gauge printed +0.4% in the past month up from 0.2% for the previous period. But the year on year rate is still just 1.3% (from 1.2%) while the trimmed mean was 0.2% mom and 0.8% yoy.
Forex
- The AUDUSD is the strongest performer in a relatively benign start to the week – save for the almost 1% collapse in GBP/USD that is. The Aussie lifted Friday night after news broke of the potential DB deal and it’s had a solid run to open the week. The NZD/USD has lagged a little which has lifted AUDNZD back to 1.0550 region. EUR/USD is a little weaker after rallying strongly on Friday night – it’s at 1.1215 this morning while USDJPY is still threatening to break higher.
- Non-farms on Friday will be important. But USD/JPY has held in extremely well.
- Looking at the pound and the break and close at the lowest levels in 3 decades is ugly and has once again ignited calls for further falls. 1.27 is a near term fibanacci objective.
Commodities
- West Texas Intermediate has broken the neck line of the reverse head and shoulders pattern as traders took crude higher overnight. WTI is at $48.67, up 0.89%, while Brent is 1.28% higher at $50.83. It’s almost there on my target of a run to $49.00/30 from last week and if this level breaks traders will be looking for a run into the mid $50’s.
- As readers know I think the Saudi’s are serious about this deal and the price action suggests traders are starting to think the same way. Just over the weekend Saudi stocks collapsed again and the Saudi central bank ordered the rescheduling of consumer loans! The Suadi's are serious and the Russians said they'll be able to freeze output if a deal is done.
- Here's the reverese head and shoulders in WTI.
- Gold has fallen on hard times and dropped out of the uptrend for 2016 in the past couple of trading days. It’s back at $1311 and looking vulnerable. But as we’ve seen many times recently the $1300/05 region is key – a break could open the way for a $50 fall based on the charts.
- Copper is at $2.18 in what has been volatile trade in recent sessions.
Today's key data and events (all times AEDT)
- Australia - ANZ Job Advertisements (Sep), Building Permits (MoM) (Aug), Building Permits (YoY) (Aug) (12.30pm); RBA Rate Statement, RBA Interest Rate Decision (2.30pm); RBA Commodity Index SDR (YoY) (Sep) (5.30pm)
- New Zealand - RBNZ Governor Wheeler Speech (12.30pm)
- China - Nil
- Japan - Monetary Base (YoY) (Sep) (10.50am)
- Germany - Nil
- EU - Producer Price Index (YoY) (Aug), Producer Price Index (MoM) (Aug) (10pm)
- UK - PMI Construction (Sep) (7.30pm)
- Canada - Nil
- US - Redbook index (MoM) (Sep 30), Redbook index (YoY) (Sep 30) (11.55pm); ISM New York index (Sep) (12.45am); IBD/TIPP Economic Optimism (MoM) (Oct) 91am); 4-Week Bill Auction (2.30am); API Weekly Crude Oil Stocks (7.30am)