Quick Recap
Stocks in the US climbed to a new all-time high dragging other markets with them but the FTSE lagged after the Bank of England left rates on hold at 0.5%. That saw Sterling launch into the mid 1.34 region before pulling back. The Yen remains under pressure and is solidly above 105. Aussie is strong but the Kiwi was hammered on RBNZ uncertainty.
What You Need To Know
- Another new high for the S&P 500 last night at 2168.99 before it eased a little into the close to finish the day at 2163.75 up 0.5%. The Dow was 0.73% and the Nasdaq 100 was 0.57% higher. In Europe, the CAC and DAX rallied hard with gains of more than 1% but FTSE traders were a little disappointed not to get a BoE rate cut sugar hit with the 100 index closing down 0.24%.
- That rally brings the US markets closer to the end of the week and a pretty bullish close above the 2135 region for the S&P. Interestingly the bears over on the NYSE have constructed a conspiracy theory that because the market moves are happening on futures market the rally is confected. As if the sellers can't sell it during the New York day. Anyway - here's the weekly chart.
- Now for the Bank of England. I wan't as daft as some people were suggesting and Mark Carney and the Bank of England did indeed hold fire and leave rates at 0.5% in July but suggested there is an easing coming in August. Now in some places you'll hear criticism of what the Bank did but my suggestion is to ignore that. Here's what I wrote at Business Insider this Morning which helps explain why.
"Just because the Bank of England did something a few economist didn’t predict, doesn’t mean they were wrong or it was a shock. OK I feel like I need to make this point again. Just because a central bank, or a data release, doesn’t do something that the pundits expect it to do does not mean it’s wrong. A couple of days back I saw an article criticising the NAB’s business survey – which I firmly believe is the single best economic release in the economy – for being wrong. Yet if you followed the leads of the NAB survey over many years you’d consistently get your take on what’s happening in the economy right.
Similarly overnight the Bank of England was said to have stunned markets by deciding to leave its rate at 0.5%, not the 0.25% many expected. I’ve read reports by economists saying things like, “this has added to market uncertainty”. Mmmm. Maybe the economists just got it wrong. The idea goes that Mark Carney misled traders. But here is the actual quote in question from his June 30 speech.
"In my view, and I am not pre-judging the views of the other independent MPC members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer."
And here is what the BoE governors statement said last night:
"Most members of the Committee expect monetary policy to be loosened in August. The precise size and nature of any stimulatory measures will be determined during the August forecast and Inflation Report round."
August is summer right? It’s a lesson again that markets, economists and traders can’t just say a bank is wrong because they don’t like the outcome.
Now you can have a look at Jim Edwards explained as to why Mark Carney held fire last night. You guessed it. It’s about the zero lower bound."
- Rant over. But this is really important if you are early on your journey, maybe even a long way in, on your journey of trading. There is little point complaining that the market did this, a data point did that, or a central bank didn't do something else. That is the path of bad traders with poor performance who blame outsiders for their P&L. Good traders, ones who make money consistently, know that they are themselves, along with their systems and processes responsible for their trading performance.
Not every trade is a winner. That's just the way it is.
- On the day today we have the release of Chinese GDP data which could be a big mover in our time zone. My colleague David Scutt has a great 10 second guide to the report which will be released at Midday AEST today.
Australia
- Traders were clearly betting the employment data yesterday would be weak if the reaction from AUDUSD traders is any guide. But the increase of 7,900 (with a big shift from part time to full time) was seen in many quarters as a sign that Australian employment remains strong. That's a hurdle to another RBA rate cut.
- So too is the release yesterday of Melbourne Institute monthly inflation expectations which printed at 3.7% for those that had a view. The overall index, which includes those who don't, settled back in the middle of the 2-3% range.
- As a result I believe the bar is very high for another RBA rate cut even if the CPI is low on July 27 when it is released. One caveat another negative number could not be ignored by the RBA.
- In the meantime though local stock traders are faced with the big decision of whether to follow the US and break the range top.
The ASX 200 closed at 5411 yesterday. That means the market has had all, and then some, of the catch up rally to the US market’s moves which we talked about earlier this week. It also means that graders have a question to ask themselves today. That is, can the market take out the recent high and kick on to a new and higher range?
It’s happening in the US and there is no real reason it can’t happen here if the US market stays firm. Technically a break of 5430 would open up the chance of a run of between 180 and 200 points in the months ahead.
Here’s the chart of the physical ASX 200 from my Reuters Eikon terminal.
Forex
- The Yen is getting smashed and traded up into the 105.90's last night before pulling back a little. You'll recall my target from earlier this week was 106.40/60 - that remains in place.
- Sterling did well also. My 50% left on my trade will be exited today given I'm going on holidays. But further upside looks possible.
- For the Aussie there is overhead resistance as you can see. But a break would be important.
Commodities
- Could crude be about to break back higher in contrast to my outlook which says it's going lower? Yes it could but it would have to break the little downtrend first. Here's the Brent chart.
- And gold looks bias back to $1325 at a minimum with $1307 in the frame.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Nil
- China - Industrial Production (YoY) (Jun), NBS Press Conference, Gross Domestic Product (YoY) (Q2), Gross Domestic Product (QoQ) (Q2) (12pm); Retail Sales (YoY) (Jun), Urban investment (YTD) (YoY) (Jun) (3.30pm)
- Japan - Nil
- Germany - Nil
- EU - Trade Balance n.s.a. (May), Trade Balance s.a. (May), Consumer Price Index - Core (YoY) (Jun), Consumer Price Index (MoM) (Jun), Consumer Price Index - Core (MoM) (Jun), Consumer Price Index (YoY) (Jun) (7pm)
- UK - Nil
- Canada - Manufacturing Shipments (MoM) (May) (10.30pm)
- US - Current Account (Q2), NY Empire State Manufacturing Index (Jul), Retail Sales ex Autos (MoM) (Jun), Retail control (Jun), Retail Sales (MoM) (Jun), Consumer Price Index Core s.a (Jun), Consumer Price Index (MoM) (Jun), Consumer Price Index Ex Food & Energy (MoM) (Jun), Consumer Price Index Ex Food & Energy (YoY) (Jun), Consumer Price Index (YoY) (Jun), Consumer Price Index n.s.a (MoM) (Jun) (10.30pm); Capacity Utilization (Jun), Industrial Production (MoM) (Jun) (11.15pm); Reuters/Michigan Consumer Sentiment Index (Jul), Business Inventories (May) (12am); Baker Hughes US Oil Rig Count (3am)
Have a great day's trading
Greg McKenna
Chief Market Strategist AxiTrader