Relative Calm As US Stocks Hit New Records

Originally published by AxiTrader

Market Summary

Not a lot to get excited by this morning.

Of course the Dow Jones Industrial Average hit another record as its run of positive close stretches to a tenth day. At the close it was up 0.12% to 22,118. And after a mostly positive run in Asia and Europe (although Frankfurt dipped on disappointing German industrial production data which was 1.1% lower) the S&P 500 and Nasdaq 100 were also higher posting gains of 0.16% and 0.51% respectively to close at 2,480 (record) and 6,383.

That’s given SPI traders the gumption to take prices another 12 points higher after yesterday’s 53 point rally on the S&P/ASX 200. Are we about to see local stocks break out? Perhaps.

On forex markets the US dollar consolidated mostly after a strong surge Friday. The euro is a little higher, pound and yen largely unchanged, Australian dollar and Canadian dollar a little weaker and the kiwi has been belted after a technical break and we await the RBNZ this week.

In commodities, oil had a wild night but again came back from the bring to close about half a percent lower in WTI terms. Iron ore followed rebar higher yesterday, which in turn supported sentiment toward Chinese growth and thus the price of copper. Gold is doing nothing.

On the docket today we have ANZ consumer confidence and the single best monthly economic indicator released in Australia – the NAB business survey. Chinese trade will be important both locally and for global markets and tonight’s German trade and US NFIB survey are also potential market movers.

International

• The Citibank economic surprise index for the United States is back above -40! That’s the first time that the index has climbed back above this level since early June when the deterioration in US data was in full flight. Naturally at -39.1 the data flow has not been brilliant recently. But it is on the improve relative to expectations and that is important for US rates, bonds, the Fed, and the US dollar.

• US Secretary of State made two important geopolitical comments last night. First he said the US could talk with North Korea if it stopped the missile tests. He also said that the US and Russia can still work together and settle their differences.

• Two Fed speakers last night. James Bullard was his dovish self – as usual – saying no need to raise rates. But the other big dove at thee Fed – Minneapolis Fed president Neel Kashkari – did say the US economy is doing pretty well. That’s all you need for the fed to continue to normalise rates and the balance sheet I’d say

• The ECB isn’t acting like a central bank about to abandon its QE program. I say that after reading Reuters story this morning that noted the bank had kind of stretched the rules for bond buying by taking more Italian bonds recently than was proportionally allowed. It did that because it couldn’t get enough other sovereigns. A bank ready to exit might have used that as a convenient excuse. Or am I making it up?

• As noted in the intro German IP fell 1.1% last month. It’s the first time we’ve see production fall this year. Most reports discount the fall as an aberration along a stronger trend. That may be the case but how this data flows is going to be very important for Forex traders and ECB expectations. Also out in Germany overnight was the Sentix investor sentiment survey which dipped a little to 27.7

• A spokesman for British Prime Minister Theresa May disavowed any knowledge of the weekend news story saying the UK is set to agree on the exit cost with the EU for leaving the bloc after Brexit. Also in the UK overnight we saw house price data which showed growth at a four year low of just 2.1%.

• Chinese Forex reserves were higher again last month. Data released overnight showed that FX reserves were $24 billion higher at $3.08. Ah the nostalgia for the hand wringers earlier this year. Joking, just joking.

• Here’s an interesting one. Reuters reports this morning that “Foreign investors sold Asian equities in July, ending a six-month streak of net purchases that helped drive a surge in regional stock markets”.

Australia

• I think I can. I think I can. That’s the message from Australian stock traders as they press prices for the S&P/ASX 200 up against the top of this wedge formation we’ve been trading in for some time. Yesterday’s rally was fueled by an apparent reappraisal of the impact on the Commonwealth Bank Of Australia (AX:CBA) of the AUSTRAC case as buyers returned to take it’s stock higher. The other banks did okay and the miners benefited from the rebar/iron ore rally in China.

• The net result was a 53 point rally and close at 5774. That’s right on the top of the wedge formation. So we are still at the “think I can stage”. But there is every chance that with SPI traders pushing prices up 12 points, a positive lead from US and European markets, and the prospect of another strong NAB business survey result that we can end the day outside the wedge and pushing higher. If we do not it will tell us much about the local market’s psyche.

• Here’s the latest update of that wedge the ASX 200 has been in:

Chart

Forex

• Only incremental moves in the US dollar for the most part overnight. That’s natural after such a big move for the US dollar on Friday night in the wake of the better than expected non-farm payrolls print. So this morning we have the euro a little higher up 0.24% at 1.1796, Sterling largely unchanged at 1.3030, and the yen likewise with USD/JPY sitting at 110.71.

• But the continued pressure on the commodity bloc – USD/CAD up 0.21% to 1.2679, AUD/USD down 0.14% at 0.7908, and the kiwi off a stonking 0.7% at 0.7358 – points to the divergence I noted last week which suggested to me the US dollar and its outlook is turning.

• Naturally I argue a big part of that has been the turn in US data at it starts to marginally beat expectations again. But it’s also a reflection that there are two sides to forex pairs and the absolute level of many currencies against the US dollar – and their push to multiyear highs in many cases – has caught the attention of traders and investors as well. Not to mention the technical setups we’ve seen. For example the German Industrial production data last night - -1.2% - reminds folks that it’s not just about the US. Two sides, two sides to every single forex rate.

• Take the New Zealand dollar for example. It’s at 0.7358, more than 200 points from the high for this run, and has now broken down and through the uptrend from May’s 0.6815/20 low. Of course the weak employment data last week helped get the ball rolling and a potentially dovish RBNZ this week has clearly got some focus. But that’s my point. The US dollar has got to levels against many pairs which threaten the very outlook folks are buying those currencies for – hence thee retracements.

• Anyway here is the NZD/USD chart.

Chart

Commodities

• Chinese rebar continued its rally dragging iron ore higher yesterday. That, in turn, helped overall sentiment toward China, its stimulus program and prospects for growth which then feed into another rally for copper. So this morning we have copper sitting at $2.91 a pound after making an overnight high around $2.92 and a half cents a pound.

• Copper is still looking toppy but it’s a great example of why I’m patient about signals from my system. It’s also a clear example of how much sentiment toward China has changed over the past 6 months. Like the Australian economy many times in its record run of growth the bears are always lurking on China. But the economy, and the resolve of authorities, just keeps keeping on. And anyone who thought the President or Premier were going to let the economy falter in such an important political year had rocks in their head – something I highlighted earlier this year.

• Looking at the chart of copper the key now is if it breaks back below $2.8590.

Chart

• Crude had a wild, wild night, as traders fret about the resumption of operations at one of Libya’s big fields. WTI fell to $48.51 at one point before recovering to around $49.37 as I write for a fall of a little less than half a percent. Brent fell 0.25% to $52.31.

• It’s clear in the Crude chart that there is a battle raging between the bulls and the bears, and I think in differing time frames. It does seem like the market is tightening, but it is equally clear that the oil bulls are back as CFTC positioning data showed again Friday. In price terms the levels to watch – WTI – are $48.34 and $50.40.

• Gold did nothing. It’s at $1,257 an ounce.

Have a great day's trading.