Originally published by AxiTrader
Chart heavy today – hope you enjoy.
Market Summary
US stocks are making new record highs again with the S&P 500 up another 8 points, 0.33% to close at 2,496. The Dow Jones Industrial Average rose 61 points to finish at 22,118 while the Nasdaq 100 was 0.34% higher at 6,454.
It was a similar story on continental Europe where the DAX was up 0.4% and the CAC 40 up 0.6%. But the FTSE 100 lagged in London after the print of August inflation at 2.9% was higher than expected.
The wash-up, however, is that SPI traders are betting we have a better day again here in Australia – they’ve added another 24 points to yesterday’s solid gains.
On forex markets trade was mixed. The pound surged on the inflation print. The kiwi did likewise on the back of a poll suggesting the English government will be returned while the US dollar did best against the yen and swissie as stocks and bond rates around the world rose on the back of an unwind of the fear trade. The mixed metaphors of a stronger dollar in some parts, risk appetite in others, and a bounce in Shanghai metals and ores left the Aussie a little lower at 0.8018 but the beneficiary of support at 80 cents.
Gold fell but bounced back with the US president and North Koreans throwing barbs at each other. Copper was a rare loser on a day of metals positivity, and oil was mixed but slightly higher.
Today in Australia we get Westpac consumer sentiment.
Here's What I Picked Up (with a little more detail and a few charts)
International
- The new UN sanctions on North Korea don’t seem to have satisfied either President Trump or the DPRK. Overnight President Trump, who was meeting with the Malaysian Prime Minister, told reports that “those sanctions are nothing compared to what ultimately will have to happen”. He didn’t elaborate. But I have to agree. The globe can’t afford for the improved ability of North Korea to deliver a horrific payload via missile to be sold into the wrong hands. North Korean UN Ambassador Han Tae-song said that the DPRK is "ready to use a form of ultimate means" adding “the forthcoming measures by DPRK will make the US suffer the greatest pain it ever experienced in its history”. Much water still has to flow under the bridge. But it's clear that words are the weapons of choice right now.
- US Treasury Secretary Steve Mnuchin told CNBC the administration is still focussed on delivering tax cuts this year and that back dating them to the start of the year would be a boon to the economy. It certainly would.
- Also in the US, the JOLTS survey showed job openings in the US hit the highest level ever. Separately another report showed that US income levels and poverty are now back to pre-recession levels. Reuters reported that “Median household income rose 3.2 percent from $57,200 a year earlier, according to a U.S. Census Bureau report. It surpassed the previous high of $58,665 in 1999”.
- Jamie Dimon said (bitcoin) trading is a “fraud” and will blow up. Yup. He also said that raising rates when the economy is strong is fine but that rates do not need to rise now.
- German finance minister Wolfgang Schaeuble gave a vote of confidence to ECB president Mario Draghi overnight. But it came with a nudge to get on with withdrawing emergency measures. “You know that I have long held the view that it is time to start the exit. I do not regard the exceptional monetary policy as sustainable in the long run”. Schaeuble said. Who can argue with him? Oh, maybe the deputy at the ECB. Overnight European Central Bank Vice President Vitor Constancio said “by keeping a sufficient degree of monetary policy accommodation we can be confident that our goal (inflation) will eventually be reached, in accordance with our mandate," adding “non-standard measures are going to be part of our toolkit for some time to come, and some of them might even be deemed standard measures at some point."
- The BoE discussion is going to be an interesting one this week after headline inflation printed 2.9% year on year during August. My sense is we’ll see at least two, possibly three, dissents from an overall decision to leave rates where they are at the moment. I say that because 2.9% is not out of hand – just ask the RBA – and even though it is still tracking higher most pundits do expect it to peak in the next couple of months. The BoE holds that view as well. So while the economic uncertainty continues – the Citibank economic surprise index for the UK is -10.9 – the BoE is likely to look through inflation and continue to wait. Forex traders are betting however they bank may signal a change is coming with sterling up 0.9% against the US dollar and 0.77% against the euro.
- The magnitude of the task facing French president Emmanuel Macron is writ large at the moment as he battles unions and strikes in his effort to free up French labour markets.
Australia
- The S&P/ASX 200 had a solid day with a rise of 33 points, 0.58%, and close at 5,746. That was a decisive break of the recent downtrend and while the local market has continued to be stuck in a range for many months surely now – with global stocks on the rise again – it must be time to run to 5,800, test the 5,830/40 resistance and test the topside of this range. Easier written here than achieved on the market though. That said, SPI traders are bullish and have added another 21 points to prices overnight.
- Levels to watch today are 5,780 and 5,805/10 then 5,833/40.
- But if there is a chance for the local market to break higher it has to be as global stocks rally. Questions of valuation are as relevant here as they are in the US and other markets. But if the overall global backdrop remains positive in terms of growth and risk appetite it seems to me the Australian market might have a period of catch up. Naturally the range has to break first. But we have had many tests of the downside recently so maybe it is time to catch up with the S&P again. Here’s the chart I shared in the past of the directional relationship of the prices of the ASX200 and the S&P 500.
- Now to the NAB Business survey. There was much hand wringing because confidence fell so sharply to a print of 5 in the latest survey. But gee whiz, if I pick up enough rocks in my back yard I’ll find a spider too. Just look at the table of the sub indexes – which I always use as an important part of the outlook. Trading, strong. Profitability, solid. Employment, through the roof with a 4 point lift to 11. Eleven folks, eleven for goodness sake. Conditions, very solid at 15. Oh and even with all these confidence has dropped.
- Some say confidence leads conditions. Often that’s true. But I’d add that I need to see a deterioration in the sub indexes before I get too worried. For now the survey suggests the Australian economy isn’t perfect but from a business perspective is doing just fine.
Forex
- It’s been a mixed day for the US dollar and currency markets more broadly. The US dollar is up o.7% and 0.5% against the Japanese yen and Swiss franc which are trading at 110.13 and 9603 respectively. Clearly, that’s part of the unwinding of global risk aversion as stocks rise. It’s flat against the euro which is at 1.1961, but the dollar – and the euro – have lost ground against the pound which is sitting at 1.3280 after the higher than expected inflation print as trader bet that will cause the Bank of England governor and his MPC some heart ache.
- The Aussie dollar is at 0.8018, down 0.15%, but off the post-NAB survey low of 0.7999 after finding support where it should have. The range of 50 points, 0.8049 the high, is fairly tight which reflects that forex traders had bigger fish to fry over the past 24 hours. The Canadian dollar couldn’t resist the US dollar overnight either and has lost 0.6% in the past 24 hours, with USD/CAD rising to 1.2184.
- The New Zealand dollar caught a bid yesterday with the release of a poll which showed the incumbent government of Prime Minister Bill English is indeed likely to be returned. The Newshub-Reid poll showed the National Party up 4 points at 47.3% while the Labour party went backwards with support falling 1.6 points at 37.8%. Forex traders clearly cast their vote as the kiwi soared the best part of a cent in the next hour or so of trade. It’s at 0.7288 now, up 0.5%. Well off the 0.7218 low.
Commodities
- Lots of interesting things happened in oil markets overnight. Not with the price which in WTI terms had a fairly benign rise of 0.3% to $48.22 while Brent was up 0.8% to $54.26. Rather the action was behind the scenes. OPEC upgraded its expectations for demand growth in 2017 and said that the production deal is helping the market rebalance. But balancing this out was news – in the FT – that Nigeria will resist any plans to cut its production. That’s important because the latest OPEC data showed that the fall in Libyan production was more than offset by Nigerian output. So much to be discussed in oil over the months ahead.
- Gold is not going to do well in an environment where risk is on, stocks are making new highs, US treasuries and global bond rates are rising, and the US dollar has caught a bid. But, it’s off its lows and back at $1332 thanks to the sabre rattling from President Trump and the DPRK in the wake of the new UN sanctions.
- Copper’s selling pressure continued again yesterday as it lost a little less than 1% to currently sit at $3.017 a pound this morning. Inventory rises and long liquidation seems to have been the order of the day. For the moment copper has held above the trend line I’ve been watching – where I got the $2.98/3.00 support zone from. But if prices do break down below $3.00 we could see further long capitulation and profit taking. $2.93 is then the next big level – and reasonable target – given it is both the 38.2% retracement of the most recent surge higher and the current bottom of the uptrend channel.
- And it was a generally good day on Chinese metal markets. Copper was pretty much the only loser with gains across the board. Germane to the conversation here in Australia today is the fact Dalian iron ore was up more than 2% while steel, rebar, prices, rose more than 1%.