Quick Recap
It’s a quiet week of data in many ways so the focus will be on Jackson Hole this weekend as the big brains of global central banking and finance get together to try to find a mix to the hopeless situation monetary policy effectiveness finds itself in.
In the mean time the US dollar is a bit stronger with the Aussie dollar, Euro and Sterling lower.
What You Need To Know
Here’s what I picked up
International
- It was a very quiet night in many ways Friday – US stocks were a tiny bit lower. The S&P 500 fell 0.14% to 2183, the Nasdaq 100 dropped just 0.03% to 5238, while the Dow Jones Industrial Average ended at 18552 – down 0.24%.
- There was a lot of “making stuff up” to explain the price action Friday I reckon. Suddenly everyone is saying it’s all about the comments from San Francisco’s John Williams we talked about on Friday. That is that rates need to rise sooner rather than later. The point of course is that when not much happens folks fit the narrative to the action…more often than not unfortunately. Ex-poste rationalisation is always rife in markets.
- Bonds were up a little, but not materially, in yield with poor old JW getting the blame as well.
- This is interesting - a new Fed paper says that it still has the tools to fight the next recession. But the most interesting part of the paper is the starting point from which the study assumes rates are cut when this imagined crisis comes to pass. Fed economist David Reifschneider kicks of his main scenario with inflation at the Fed's 2% target and the Fed's interest rate at 3%. One of two things is going on here. Either he needs to have a chat with Darryl Kerrigan or we have a window into Fed thinking that they must raise rates.
- I think it’s a bit of both. So I’m looking for an interesting speech from Fed chair Janet Yellen which she speaks at Jackson Hole next weekend.
- Wondering why negative interest rates don’t appear to be working? The easy answer is aging populations need income to live on and they don’t really want to draw down savings. Add in that those of us less than 20 years from retirement know we probably need to save more and you have a toxic combination where consumption lags the hopes and dreams of big business and central bankers. Throw in the fact that increasingly folks need to work longer with a later retirement age and you get a bit of a handbrake on the economy. The Bundesbank is the latest to say folks should work until they are 69. It all adds to the worry folks have about their financial situation. Imagine what things will be like here in Australia when property prices go nowhere for a few years…..
- Not the biggest week of data or events with Jackson Hole the focus. German, UK and US GDP are important in the lead up though.
Australia
- After the 19 point rise on Friday the S&P/ASX 200 is set for a quiet open with SPI futures indicating a fall of around 6 points at the open. Energy stocks look likely to have another good day and the miners also if the moves on US stocks on Friday night are any lead. Both sectors in the S&P 500 were up 2% and 1.3% respectively. Financials were half a per cent higher so it might be a better day than SPI traders are thinking.
- I still like the SPI200 lower...back toward 5400.
- What a week we have ahead of us on the reporting front with a bumper series of reports across the week. FMG is interesting because it always is, but I’ll be paying special attention to the retail arm of Wesfarmers and the reporting from Woolies to try to get a handle, especially the guidance, on where the economy is actually sitting at the moment. SEEK today is probably of most interest on that front.
- And it is going to be the lead from offshore and the raft of reports which will dominate the market this week given it is as barren a week as we get in Australia on the data and event front.
Forex
- Sterling was sharply lower on Friday night after speculation surfaced that British prime minister Teresa May could trigger Article 50 which sets the wheels in motions for the Britain’s exit from the EU. Bloomy reported that May is “sympathetic” to triggering the clause by the end of April “at the latest” – of course the sources were unnamed. An definitely not short Sterling ;) GBP/USD is back at 1.3050 this morning.
- That helped the US Dollar Index, in index terms, rally off important support – as highlighted in my note Friday – which also saw EUR/USD pullback from overhead resistance and it’s down at 1.1311 this morning as forex markets kick off for the week. Here’s the DXY chart from my Reuteres Eikon
- The Australian dollar came under pressure on Friday. Indeed it’s been under pressure for a couple of weeks in many ways. While much of the commentary has been on the continued support stemming from offshore investors, the yield pick up, bounce in commodities and so on the opposite has also been true. That is every time it’s climbed up and through 77 cents, toward 0.7750 the sellers have knocked it back again.
- On Friday it fell below 76 cents and it’s only just above that level now. Is every body who wants to be long already long? Here’s the chart…important support around here.
Commodities
- Crude Oil finished the week strongly. But I wonder if this rally can last…can the Russians, who seem to be getting into bed with the Iranians who have also just admitted over the weekend they are supporting a mercenary army in three theatres in the Middle East, actually stitch up a deal with the Saudi’s who are the enemy of Iran? I wonder.
- Anyway WTI closed at $48.52 in the front contract, which closes out tonight (shenanigans?), the second contract finished at $49.11 while Brent closed at $50.88 a barrel. For the moment the technical target of a full round trip to the previous high is still the most likely way traders are looking – but for me it’s time to think about exiting longs from this trade.
- A stronger dollar is not what the gold bulls wanted and it’s off round $10 an ounce and back at $1341. Gold has just rejected a retest of the old uptrend line, and looks like a test – probably break – of support at $1329 is on the cards.
- Copper is at $2.1665 in a little diamond pattern which suggests something might happen soon.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Nil
- China - Nil
- Japan - Nil
- Germany - Markit PMI Composite (Aug), Markit Manufacturing PMI (Aug), Markit Services PMI (Aug) (5.30pm); German Buba Monthly Report (8pm)
- EU - Markit Manufacturing PMI (Aug), Markit Services PMI (Aug), Markit PMI Composite (Aug) (6pm)
- UK - CBI Industrial Trends Survey - Orders (MoM) (Aug) (8pm)
- Canada - Wholesale Sales (MoM) (Jun) (10.30pm)
- US - Markit Manufacturing PMI (Aug), Markit Services PMI (Aug), Markit PMI Composite (Aug) (11.45pm); 3-Month Bill Auction, 6-Month Bill Auction (1.30am)
Have a great day's trading
Greg McKenna
Chief Market Strategist AxiTrader
www.gregmckenna.com.au
Please note: I usually look at 2 or 3 charts each day. These will not always be the same charts and the above is meant to help guide traders thought processes not offer advice.
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