Originally published by AxiTrader
Market Summary
US markets reversed a little of the weakness seen in Asia and in Europe last night after more strong labour market data and a big bounce in the Philly Fed manufacturing index reminded traders that the US economy is still strong enough for the Fed to retain its tightening bias.
That’s seen the Dow Jones Industrial Average, S&P 500, and Nasdaq 100 all higher this morning with most sectors of the S&P 500 in the black.
But that’s not as good news as you may think if SPI traders are to be believed. After yesterday’s 48 point, 0.82%, fall on the physical ASX200 SPI traders have marked the SPI down 3 points this morning.
On forex markets the reversal in market tone lead to a reversal of the risk off feeling which has aided the US dollar which is higher across almost the entire Forex board. euro is back under 1.11, USD/JPY is back at 111.50 and the pound – which was up near 1.3050 at one point after solid UK retail sales – is back at 1.2932. The Aussie too is lower at 0.7415 after running to a high of 0.7466.
Gold is also well off the highs at $1,247, copper recovered strongly from a dip below $2.50, and oil is up as traders focus on next week’s meeting and the chance for an extension with WTI up half a percent at $49.33.
It’s all a sign that the buy the dip crowd still hold sway.
Datawise things are fairly quiet into week’s end.
Here's What I Picked Up (with a little more detail and a few charts)
- S&P 500 +9 (0.37%) 2366 (7.22 Sydney - change since previous day)
- Dow +56 (0.27%) 20606
- Nasdaq +44 (0.73%) 6,011
- SPI 200 -3 (0.05%) 5,727
- AUDUSD 0.7415 (-0.18%)
- Gold $1247 (-1.09%)
- WTI Oil $49.34 (+0.55%)
International
- It’s the data stupid. The Citibank economic surprise index for the US rose around 4 points last night to -33.6 after the solid jobless claims and Philly Fed data came out. With a print of 38.8 the Philly Fed easily beat expectations for a drop to 19.5 from last month’s 22. It’s a good sign as is the continued fall in initial jobless claims which printed a remarkable 232,000 last week. Continuing claims continued to fall as well and sett another 28 and a half year low with a further 22,000 fall over last weeks number.
- It’s a solid sign the jobs market remains tight and it’s no wonder that Cleveland Fed president Loretta Mester said the Fed needs to keep raising rates overnight. “I think that it’s important for the FOMC to remain very vigilant against falling behind, especially given the low level of interest rates and the large size of our balance sheet” she said adding that the balance sheet adjustment should begin this year. The CME Fedwatch tool says the probability of a rate hike in around 26 days are still around 74%.
- Donald Trump undermined the statement the White House put out yesterday – as usual with a tweet. Okay so we know the revelations this week have serious imperilled the Trump administration’s legislative agenda on tax and infrastructure. At best they are going to be further delayed while the Russia probe is undertaken. At worst there is a slim chance the Trump presidency is at risk. We have no way of knowing. But the presidents tweetstorms are unhelpful at pushing his agenda forward. And as I write often this is important for this note because of the impact of the economy and markets. Uncertainty has risen and that’s not usually positive for either.
- I want Donald Trump to succeed. I want all US presidents to succeed. Just like I want Europe to work, China to be prosperous, and whoever is leading Australia to do a good job. I want them all to succeed in getting the strongest possible economic conditions to continue to grow the global economy. I’d like a little more equality because I feel like I am witnessing the unwind of the great personal and democratic benefits the industrial revolution ushered in for the past few centuries. Because I believe growth fixes a lot of the ills in the world. But president Trump hasn’t yet morphed into the president I hoped he’d be. And perhaps he either can’t, or won’t get the chance. But let’s hope the special prosecutor can get to the bottom of whatever happened, or didn’t, and the US can move on – in the end that’s good for US and global growth. And that’s good for global citizens.
- Interesting though for those who want to try to understand the president a little more is this article by Tony Schwartz – the man who wrote Art of the Deal with Donald Trump. It’s illuminating as to the type of fellow he is, or was. Anyway…
- In the end we’ve seen a reversal of the weakness that we saw in markets the night before. In no small measure, this is likely because traders and investors have calculated the actual odds of a Trump impeachment on the information at hand right now and decided they are low. But because the legislative agenda – and thus the growth pulse – is looking delayed all we’ve seen is less selling not buying with gusto. Should the data recover from recent weakness we could see some gusto because it will underwrite the Fed’s assertion that the Q1 weakness was transitory. It’s the data.
- On volatility in markets and why last night’s quieter trade may not last I wrote a piece explaining why vol tends to cluster.
- In Europe the ECB minutes showed an overall reluctance to change policy just yet but that the conversation – led by the German and Lithuanian central bank presidents – is under way.
- In the UK, beside PM Theresa May releasing her manifesto last night the resurgence in data continued overnight with retail sales for April printing a solid 2.3% against expectations of a 1% rise. That took the year on year rate up to 4% against expectations of a 2% rise. It shot GBPUSD higher to 1.3050 before Sterling was hammered lower again. This data, in the face of rising consumer prices will put a little pressure on the BoE and its accommodative policy settings.
- It’s election day in Iran. I’ll talk more about the implications Monday when we know if Hassan Rouhani has been re-elected or not.
- Corruption claims in Brazil are roiling markets in that country and it seems adding a little bid to oil.
Australia
- How ugly have the past couple of days trade been on the ASX. The market found support under 5,700 yesterday in S&P/ASX 200 terms as the solid employment data really reinforced the RBA’s recent upbeat message about the outlook for growth.
- But I’m curious why SPI traders haven’t marked prices higher overnight after the recovery in US stocks. Perhaps – my hypothesis – is that the recovery was tepid and traders know that volatility clusters as I explained in my piece mentioned above. So that means the rally last night – 0.4% on the S&P 500 – was not exactly inspiring. Thus local traders may be a little reticent to get too aggressively bullish in trade today.
- For SPI traders yesterday’s move is both outside the bolly bands which suggest some further consolidation. But the key level to watch is the bottom of the previous trading band at 5,771. The SPI needs to get back above there to get me excited that this is a short burst of bearishness and the good times will roll again.
Forex
- What a wild night for forex traders. As I went to bed around 9.30pm Sydney time the US dollar was well on the back foot across the board but it’s recovered strongly on the back of the data and I’d have to say the absolute pace of the moves against it.
- Take the euro for example. It went vertical this week. And as any chartist will tell you the steeper the uptrend the more likely you are to see a reversal – probably a sharp one – soon. So the 100 point reversal of EUR/USD from 1.1170ish to 1.1070ish isn’t exactly surprising. But as you can see in this chart euro found support at the top of the old uptrend channel. That’s the level to watch.
- And the euro’s reversal was pretty much mirrored in all the other pairs I watch against the US dollar. The Aussie traded to 0.7466 but it’s back at 0.7418, USD/JPY fell to 110.24 but it’s all the way back at 111.49. It a similar story for Sterling, for the Swissie, and for emerging market currencies.
- My sense is that this is a reaction to the pace of the move rather than a turn in the US dollar right now.
Commodities
- Crude is up with WTI at $49.33 and Brent at $52.48 both around half a percent. Traders appear to be focused on next week’s OPEC meeting and the expectation for the 9-month extension of the production cut deal. What are the chances of a bigger cut? Not sure. But it would be a nice way to really goose prices.
- Just quickly watch that Iranian election and it’s worth noting that Igor Sechin – the boss at Russia’s oil giant Rosneft – is already talking about the competitive environment when the agreement ends while at the same time US crude is heading to Asia to replace Saudi cutbacks.
- Gold has a great night which turned ugly as it traded through a $20 range. The high of $1265 gave way to a fall to $1245 and gold sits at $1,245 now down 1% on the day. It’s testing the break of the downtrend.
- Copper had a shocker falling to around $2.48 a pound before rallying back to $2.52.
Have a great day's trading.