Is That It?

Originally published by AxiTrader

Market Summary (7.51 am)

The VIX is at 19.4, US 10's are at 2.90%, the dollar has lost another 0.6% and stocks are higher once again.

That’s the short version of what happened overnight.

Of course Asia and Europe were in the green last night, just, although the euro's surge restrained stocks as did the yen's move to new highs against the US dollar yesterday.

But in the US it’s onwards and upwards once more with the S&P 500 adding another 0.86% to 2,721. It’s now through the 50% retracement level of last week’s carnage with 2,743 the only thing standing between it and the all time highs on a Fibo basis. The Dow is up 1.07% and the Nasdaq is 1.49% higher.

Naturally SPI traders have taken that lead and added another 21 points suggesting it’s going to be a good end to the week on the ASX today.

Not so good for the US dollar though which has been under pressure from around 1-2pm New York time last Friday when stocks bottomed. It’s tantalising close to making fresh lows, and perhaps break, in US Dollar Index terms as the yen strength (USD/JPY at 106.08) drives the move this time. Euro is close to fresh highs though sitting at 1.2505 and the pound is back up near 1.41 at 1.4080. The US dollar just can’t take a trick it seems.

And that’s helped commodity currencies with the less liquid one – the kiwi – once again gaining the most against the US dollar with a rise of 0.49% to 0.7405. The Aussie is off it’s highs and lows though at 0.7939 as the focus swings to the AUD/USD 10 year spread (see below). The Canadian dollar is down only a smidge even as the BoC’s Schembri said the bank will be cautious on rates.

On commodity markets copper was a little higher again at $3.255, gold is at $1353 largely unchanged while WTI has outpaced Brent with a 1.25% gain.

Not a lot out over the next 24 hours. Here in Australia we have the release of new motor vehicle sales and then tonight the focus is on the US with export and import prices out along with housing starts and building permits as well as the Baker Hughes rig count. Michigan consumer sentiment, conditions, and inflation expectations are also to be released.

And of course RBA Governor Lowe will front Parliament. The message from the RBA on the economy is clear however, so I wouldn't expect any surprises.

Here's What I Picked Up (with a little more detail and a few charts)

International

• Is that it? I’m sure that is the question a lot of traders, investors, and observers will be asking after this week’s rally in US and global stocks has erased so much of the previous week’s losses. The only answer I can offer with any sense of clarity is I don’t know. I’d also have to add the question I have asked for the past couple of decades when someone asks me my view on the Aussie dollar – what’s your time frame?

• I say both these things because the price action is clear. The S&P futures (CFD in my terms) made a double bottom last week and has bounced solidly from the 200-day moving average, the trend line ( in terms of actual trend interpolated) from the 2009 low and the trendline (in charting terms) from the February 2016 low. That’s the chart I shared Monday.

• Looking at the S&P CFD though you can see the support and the bounce clearly. It’s now above the 61.8% retracement level which could normally open up a run toward the start of the move lower at the record highs. I confess to not being that bullish however. Not unless I see it take out the mid-Bollinger band level at 5,752 anyway.

• Looking at the data last night I can see why the US dollar is under pressure. The headline writers have focussed on the miss in industrial production, which fell 0.1% missing the 0.2% increase that had been forecast. But on balance the data was more positive than negative. YoY industrial production is running at a 3.7% pace, initial jobless claims remain low at 230,000, the PPI data for both headline and core printed 0.4% (in the case of core that was higher than the 0.2% forecast) meaning that PPI is running at 2.7% in headline terms and 2.2% in core terms. The Philly Fed manufacturing index was also a little higher at 25.8 against the 21.1 expected. So not terrible at all. But bonds haven’t blown higher which frees stocks to keep rallying and the US dollar to take a belting.

• In the IMF’s weekly presser spokesman Gerry Rice said the world economy remains in robust heath regardless of the recent market volatility.

• As readers know one of my themes is to watch the big tech companies. So on that front, news that Warren Buffett is in Apple (NASDAQ:AAPL) and in size, helped the stock last night. But across the Atlantic, the EU told Facebook (NASDAQ:FB), Google (NASDAQ:GOOGL), and Twitter (NYSE:TWTR) that they need to bring their user terms in line with EU law.

• And in NAFTA news, US Treasury Secretary Mnuchin said he was “cautiously hopeful” the US will reach a deal on NAFTA. That’s something the Mexican foreign minister also said overnight. And I’m pretty sure the Canadians said something similar the day before.

• Oh, and folks keep an eye on Syria and the Middle East. Or maybe I’ll do that for you. The news is now that up to 300 Russians were killed or injured in that battle with US allied forces which the US stepped in and ended so effectively last week. Also worth keeping an eye on the Iranian/Israel drone-F16 face off we saw last week as well. IT seems, if it is possible, that Syria is getting even messier for the great and regional powers.

• And before I go onto other things, CNBC reports that a survey of PE executives and distressed debt investors found they see the chance of a UK recession post Brexit within two years.

Australia

• Yesterday’s employment data was pretty much on the money with a print of +16,000 new jobs. The big swing between full time and part time was interesting. But the ABS delineation of 35 hours as the FT/PT level always strikes me as too high so I usually disregard it as an indicator in favour of the overall increase (or fall). Naturally though the switch from full to part-time did have a corollary in hours worked. The data also showed a continued increase in the participation rate along with the increase in jobs. Equally it is worth noting that the employment to population ratio held firm at 62% - after a solid recovery in the past couple of years. That is a good sign that even though the unemployment rate seems sticky in this 5.5% region a broader spectrum of the Australian working age population is enjoying the fruits of the jobs boom. That can only be good for spending and growth. And as David Scutt over at Business Insider pointed out Australia just set a record for jobs creation with 16 consecutive months of growth.

• Also getting plenty of airplay yesterday was the fact that the Australia/US 10 year bond spread is properly negative now. Regular readers of this note and my daily Aussie dollar piece know that I’ve been banging on about the bond spread for ages now. But the talking point is that while the 2’s spread has been negative for a while the 10’s went negative this week for the first time in about 18 years. That reduces the attractiveness of the Aussie dollar to global investors. Except of course when the US dollar is itself the ugly sibling. So even though the Aussie is neither Prince Charming nor Cinderella it is at least getting a few dances at the ball given the US dollar is so out of favour. That’s something the following chart shows – the AUD/USD has been able to shake off the closure of this spread recently. After all, every quarter since President Trump took office the US dollar has fallen.

• Turning to stocks now and it looks like another good day for the local market after yesterday’s stonkingly good performance to close at 5,909. SPI traders are betting on another lift although much smaller than yesterday’s gain with an increase of 14 points overnight. That’s both interesting and important because the key short term resistance on the physical S&P/ASX 200 is 5,916 which is the 38.2% retracement of the fall to last week’s lows.

• Interestingly the SPI has already roared through the 38.2% and 50% Fibo levels and last night pulled up just under the 61.8% level at 5,892 overnight. A break of this level would then put prices into the gap below the previous 3 month range low at 5,922. If the SPI can best that then the outlook would materially brighten.

Forex

• Oops a daisy – the US dollar is getting smashed again. The DXY is now down at 88.57 and right in that 88.30/60 range I highlighted some time back – and where the recent low was – as important support that must hold for the dollar. It hasn’t broken yet – but gee whiz its close. And As I have often suggested a break opens up a two big figure move into the low/mid 86 region.

Source: Investing.com

• The US dollar has fallen every quarter since Donald Trump entered the White House. It’s amazing how much he is getting of what he promised and what he wants. Taro Aso and the Japanese may not be complaining about the yen strength but there is a clear kicker to the US corporate sector from a weaker US dollar. The question is will this trendline at 86ish hold in DXY terms.

• Indeed my sense is USD/JPY could be headed toward 100.00/101.50 region maybe even 98, when I look at the long term chart I’ve been sharing. Here is the USD/JPY monthly chart.

Commodities

• Much is going on in oil markets at the moment. As a result of the clear uplift in US shale oil rigs, capacity, and production the Saudis are signalling something longer term with the Russians and other non-OPEC members for a longer term tie up. That’s something OPEC secretary general Mohammad Barkindo told CNBC earlier in the week. “I have had and received assurances both from (Energy Minister) Alexander Novak and President Putin that they would remain committed to the OPEC/non-OPEC collaboration under the declaration of cooperation,” Barkindo said.

• Anyway looking at the price action we saw a big gap open up between WTI and Brent overnight with the former gaining more than 1.55% while the later is only up 0.25%. That’s despite Halliburton (NYSE:HAL) saying overnight that it expects the rig count could continue to climb by as much as 10-15%. Anyway the best thing to say about both WTI and Brent is that they found support where it should have been and spent 4 days last week testing and building the base. For WTI, see below, $62.13 is the 50% retracement level of the selloff with $63.10 the 61.8% move.

Have a great day's trading.