Originally published by AxiTrader
Market Summary
The S&P 500 managed to eke out another new record high at 2415.82 for a tiny 0.03% gain. The Dow Jones Industrial Average dipped 0.01% to 21,080 while the Nasdaq 100 rose 0.08% to 6,210. European stocks were a little mixed although the FTSE 100 in London cheered the pounds fall by rising 0.4% to 7547 – a new record.
That’s all helped SPI traders bet that things might pick up today after Friday’s 37 point loss. They added 7 points at the close on Saturday but it could be thin with the UK bank holiday and US Memorial Day weekend.
On foreign exchange markets that pound drop was the main story as the polls tighten materially in the UK general election which is coming up fast upon traders. Elsewhere the US dollar was generally stronger with Euro down a bit and the Aussie dollar under pressure. It was off its low at the close Friday but is under pressure again this morning at 0.7430.
On bond markets things are pretty quiet but gold and oil had solid night’s Gold broke out of the $20 range and is at $1,266 while oil recovered 1.3% in Brent terms and 1.8% in WTI terms after Thursday night’s disappointment in OPEC’s decision. Copper dipped a little.
It’s going to be a big week for markets with plenty of fed talk and then non-farm payrolls on Friday night. This will set the tone for what is expected to be confirmation of markets expectations that a June hike is a lock.
Here at home it’s an important week of data with retail sales and CapEx the highlights. Has the economy really slowed as much as many now fear. We’ll know more over the next 10 days.
And late breaking: North Korea has apparently just fired another projectile CNBC reports.
Here's What I Picked Up (with a little more detail and a few charts)
- S&P 500 +1 (0.03%) 2416 (7.15 Sydney - change since previous day)
- Dow -3 (0.01%) 21080
- Nasdaq +5 (0.08%) 6,210
- SPI 200 +7 (0.12%) 5,763
- AUDUSD 0.7438 (-0.17%)
- Gold $1266 (+0.90%)
- WTI Oil $49.80 (+1.8%)
International
- The destruction of the post WWII compacts of the west which began with Brexit, and which was threatened by the election of president Trump and his isolationist bend took another forward step over the weekend. In the wake of G7 German Chancellor Angela Merkel said “The times in which we can fully count on others are somewhat over, as I have experienced in the past few days…And so, all I can say is that we Europeans must really take our destiny into our own hands”. Emmanuel Macron didn’t miss either “My handshake with him (president Trump), it wasn't innocent. One must show that you won't make small concessions, even symbolic ones.” He then went on to compare the president with Vladimir Putin and Turkey’ president Recep Tayyip Erdogan in terms of the way they view “power relationships”.
- Why am I writing about politics in this markets note? Because this long term trend will impact markets over time. Especially if co-operation breaks down.
- And speaking of politics, British prime minister Thersa May is discovering this isn’t going to be the coronation she thought the snap election might be. In truth the polls are all over the place but some have seen the Conservatives lead fall into mid single digits which is a lot tighter than many expected. Naturally GBP/USD doesn’t like that and it collapsed to 1.28 where it sits this morning.
- Now for more mundane topics like the economy. And US Q1 GDP was revised up by half a percent (annualised) on Friday night from 0.7% to 1.2% as corporate profits were added but business spending decelerated. On the good news front the report said consumer spending grew at 0.6% not the awfully weak 0.3% reported in the first read of GDP. But that is still pretty poor and the weakest since Q4 2009 Reuters reports this morning.
- And on the topic of the US economy and the Fed Maurice Obstfeld the IMF’s chief economist said Friday that the US economy’s data dip is just a “splutter”. And it’s also increasingly clear that whatever the Minutes said last week the fed is more interested right now in its own forecasts not on the weakness in data when it comes to the expected June rate hike. We get some important speeches this week along with very important data in the US.
Australia
- It was another bad day for Australian stocks Friday with the ASX200 falling 37 points to close at 5751.66. There were just 63 stocks higher on the day as all sectors fell save for utilities which eked out a 0.1% gain. Naturally with the previous night’s fall the energy sector was the weakest. But some of that might be regained today after oil had a better night Friday. Otherwise it is the continuation of what seems to have been a fundamental rerating of the Australian market and the prospects for the economy.
- That’s no real surprise really given the chat over the past week has increased about the possibility of an incredibly weak print for Q1GDP when it is released on Wednesday week (apologies I think I wrote it was this Wednesday in one of my notes last week). Both the NAB and ANZ have warned that with housing construction slowing faster than expected and consumers on the back foot the added detraction of Cyclone Debbie increases the risk of a negative print.
- That makes this week’s data flow, which includes retail sales, building approvals, CapEx, and credit important in framing he debate and guiding expectations about just where this Australian economy is at right now. That’s particularly important because the chance of a negative GDP print has pretty much come out of nowhere into the market’s consciousness. As at the last read Friday the Citibank economic surprise index for Australia was printing 34.4. That means the data is still doing a little better than forecasters have been forecasting. So any collapse in the data will feed through into price action for stocks and the Aussie dollar pretty quickly. Even after recent falls.
- It’s all part of the reason I wrote Friday the Aussie could be in for a capitulation and fall below 70 cents. Essentially with the RBA reluctant to cut the Australian economy it increasingly looks like it needs a lower Aussie dollar to balance weakness. Bonds and commodity prices certainly suggest this.
- Which brings me back to the ASX200. On Friday night SPI traders marked prices up seven points. That may or may not be a good indication of where we end up given trade is likely to be thin with the UK out for bank holiday today and the US out for Memorial day. But the key level to watch on the index is 5680/5700. If that level – which held the recent low and a low back in March gave way then the next stop is 5,580/5615 where the 38.2% retracement of the Trumponomics rally sits and the low of 2017. Here's the chart.
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Forex
- Sterling had a shocker to end the week Friday as the polls tighten for the general election and uncertainty grows. Last week I wrote I thought the GBP/USD was biased back toward 1.2830ish and below that the 38.2% of the upmove from late February which comes in at 1.2680. That’s now the target.
- The euro is also under pressure and certainly looks like a top is in place for this run. CFTC data Friday night – for positions as at last Tuesday – showed that the market is the longest it’s been since 2013. That makes the top I suggested might be in for the EUR/USD more likely. 1.1100 is the first target – euro is at 1.1170 this morning.
- USD/JPY (111.19) is still mixed and the Aussie dollar remains pressured but off its lows. Only just for the Aussie which is at 0.7430 this morning. As highlighted above there are a myriad of factors staking up against the Aussie dollar. But you need look no further than the bond market rally and the relative performance of the ASX compared to the S&P 500 to know Australia has been rerated by global investors.
- And China moved to tighten up the link between the Yuan and the US dollar on Friday. It looks like authorities were non-plussed by the yuan’s strengthening AFTER China was downgraded by Moody’s last week. That saw it trade to it’s strongest level since January against the USD and the China Foreign Exchange Trade System said it is going to add a “counter-cyclical” factor to its daily reference rate each day.
Commodities
- You could probably say trade was a little thin Friday in oil markets but nonetheless both WTI ($49.80) and Brent ($52.15) bounced back neatly on Friday night for a more than 1% gain. Overall though oil markets suffered heavy selling pressure last week after OPEC failed to add anything to the pre-announced 9 month extension to the production cut.
- It’s a clash of OPEC’s long game to bring inventories down and traders short term need for news and catalysts. It simply reinforces to me that as the battle plays out between OPEC and North American oil it’s going to be all about inventories and whether they fall as much as OPEC thinks. WTI has firm support at $47.40/60 which needs to hold.
- Gold charged higher on Friday in a rather interesting move. At $1,266 it has now popped out the top of the $20 range and could be biased back toward important resistance at $1,276. Why is gold up when stocks are holding firm, bonds relatively quiet, and risk appetite generally still okay? The only reason I can see – and one I wholeheartedly embrace – is uncertainty. Around global politics, around this UK election, and around the outlook for the economy and markets.
- Just looking at the moves in the Citibank economic surprise index shows the data flow has been going in the wrong direction lately. Not terminal of course. But supportive of gold when you throw the other uncertainties in the mix.
- Copper is a little lower and back at $2.56 a pound.
Have a great day's trading.