Originally published by AxiTrader
Market Summary
Stocks in the US rebounded again on Friday night as traders shrugged off the tensions in Washington and as the solid rise in oil and commodity markets helped lift prices and sentiment.
With across the board rises – every sector of the S&P 500 was higher – the big three indexes in the US rose neatly into week’s end. The S&P 500 was up 0.68% to 2,381, the Dow Jones Industrial Average was up 141 points to 20,804, and the Nasdaq 100 was up half a percent to 6,083. European markets were also higher.
That didn’t erase Wednesday’s fall but it did reinforce to the buy the dip crowd that nought has changed.
And it has buoyed SPI traders who have marked price up around 26 points suggesting a good start to the day. And there is more than an even chance the rally could end stronger by 4pm.
On forex markets the US dollar continued to lose ground Friday with a solid rally in the Aussie (0.7446), euro, and swissie. There has been a slight reversal this morning after the latest North Korean missile test over the weekend.
On commodity markets oil is higher as “sources” say OPEC might be looking at a deeper cut as well as the extension when it meets this week. Gold is sitting at $1255 and copper bounced sharply to $2.57 a pound in what has been a really solid bounce in base metals and iron ore to end the week.
There is nothing of note on the docket to start the week. But traders will naturally be following president Trumps tour of the Middle East and Europe closely.
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
- AUD/USD 0.7415 (-0.18%)
- Gold $1247 (-1.09%)
- WTI Oil $49.34 (+0.55%)
International
- We might have a good week this week. We get Fed minutes which will likely reinforce the fact that Janet Yellen and her colleagues believe the slowdown in Q1 was indeed “transitory”. Equally after Friday’s rally in crude helped buoy US stocks the OPEC meeting this week is important. Rumours of a surprise extra layer of production cuts would certainly get things moving on that front. And of course the appointment of a special prosecutor to investigate the Russia question has relieved the pressure on markets and given some sense of certainty that we’ll final get to the bottom of things and find out if this is a storm in a teacup or something more worrisome (former FBI Director James Comey will testify next week - after Memorial Day). But the fact that the process is in hand has calmed tensions somewhat.
- And of course we have President Trump on his 9 day tour of the Middle East and Europe. He’s inked a big arms deal with the Saudis, entreated the region to fight terrorism, and is now heading to Israel before heading to Rome and the Vatican, attending a NATO meeting in Brussels and G7 in Rome and then G7 in Sicily. So far he’s stayed on script and there is a fair chance that the daily dose of scandals slow’s down while he is away. Even the NY Times editorial board’s piece over the weekend urged calmer heads and said this is not Watergate.
- Anyway, here’s a graphic of his itinerary from the NY Times
- Bundesbank president Jens Weidmann seems to have had a makeover – of sorts – sounding positively conciliatory about the outlook for rates in the EU and the need to normailise. On inflation he said that save for energy prices inflation remains subdued and that “At present it is indisputable that an expansive monetary policy is appropriate”. But he did add that there is much debate about the “necessary degree of monetary expansion and the instruments we use”. He did note however that inflation would increase with the economic recovery underway and “this must be adequately taken into account in our forward-looking monetary policy, and there are also discussions about this in the Governing Council”.
- And suggesting the ECB will continue with this accommodative policy ECB board member Benoit Coeure said the bank needs to factor in the hidden slack in EU’s labour market when setting policy. I’ve written often the ECB is where the Fed was a couple of year back – contemplating changes to policy but well away from aggressive moves. These comments simply reinforce that.
- And speaking of central bankers, the US Fed’s Uber dove – St Louis Fed president James Bullard - said that the Fed’s plans for rate hikes may be too fast for the state of the economy. Of note he said inflation is weak and “too low for the Fed to reach its inflation target”. It’s the big question in the global economy. How exactly do we have tighter labour markets in the US but little wages growth. We’ll see over the next 6 months or so but if the job market wages growth nexus still has any real linkage wages growth should start to accelerate soon.
- Iranian president Hassan Rouhani was re-elected decisively over the weekend. He fought off the hardliners and pledged to open up Iran to the world. Interestingly though both Donald Trump and his Saudi hosts called out Iran directly as the source of terror across the region. “For decades Iran has fuelled the fires of sectarian conflict and terror; it’s a government that speaks openly of mass murder, vowing the destruction of Israel, death to America, and ruin for many leaders and nations in this very room” Trump said. Whatever the political rhetoric Rouhani is likely to try to keep sanctions at pay and the oil wells pumping as he tires to open up the economy. So a source of risk to further disruption to global oil supplies is somewhat diminished with his win.
- North Korea fired another missile over the weekend and US Secretary of State Rex Tillerson implied he hadn’t even started yet really isolating the Hermit Kingdom.
Australia
- The S&P/ASX 200 was down 11 points on Friday but SPI traders reckon that the worm might have turned. Thay’ve marked prices up 26 points to start the week with a 0.45% gain on Friday night. Certainly Friday’s range and close at 5,727 was inside the previous day’s range and the market did fall hard and fast in the last few days of last week so as long as the 5,680/5,700 holds we might see a decent bounce. That’s also predicated on US markets going back to their quiet, range bound trade.
- Supporting the chance of a rally could be increasing calls from some IB’s that the collapse in iron ore has gone too far and too fast. Or the fact that financials are pretty close to the levels they found support at the day after the budget announced the funding levy on Australia’s Big 5 banks. Not to mention that base metals and iron ore had another good session to end the week.
- So I’m expecting support to hold and a rally to ensue. It’s a question of how far though given the sentiment hitting collapse we saw in ASX prices last week.
- There is no data out of note in Australia today – and very little across the week. But its worth noting the AFR has an article of prominence on their site saying Interest-only loans could be 'Australia's sub-prime'. The paper says JCP Investment Partners conducted a study “of the nation's record high-and-growing household debt mountain, the Melbourne-based fund said Irish-style housing losses for the bigger-than-recognised pool of riskier borrowers could wipe out half of the banks' equity capital”.
- That will keep a focus on financials no doubt.
Forex
- The US dollar was under heavy pressure last week and even though it has opened stronger this morning it remains under pressure. Last week the euro rallied around 2.5%,. The Swissie a little more, while the yen gained just shy of 2%. The Canadian dollar saw a record short position Tuesday and then promptly rallied 1.5% while the pound gained 1.13% and the Aussie just shy of 1%.
- Yes it was about the president woes. Yes it was about worries about the lack of traction of Trumponomics and further delays before we see and tax or infrastructure spending. And yes it seems weird that Forex traders – and to a lesser extent bond traders – are paying more attention to this than the equity market. But the reality is the pickup in Europe and positive result from the French election has unlocked a fund flow into the EU at the expense of US markets. And equally while stocks have the insulation of very solid earnings growth forex and bond traders are worried about the deterioration in US data recently. So they are moving out of the US dollar.
- So this morning we have EUR/USD at 1.1190,USD/JPY at 111.08, GBP/USD at 1.2990 – after a run at 1.3050 again on Friday, and the USD/CHF is at 0.9733. All a little lower than Friday’s close – perhaps after the missile test over the weekend and Tillerson’s comments I’ve noted above.
- The Aussie is at 0.7449 after a solid rally Friday. Friday’s bounce means the charts are still positive for the Aussie even after Thursday’s ugly trade. Friday was an outside day, lower low and higher high so I’ll be interested how things move across our day today in Asia forex and wether the US dollar again comes under pressure.
Commodities
- The OEPC jawbone was working overtime again on Friday. Reuters reported that OPEC has a panel looking at the possibility of a deeper cut to production in order to accelerate the fall in inventories and goose prices. We’ll know more after the meeting this week.
- But we already know OPEC has build upward momentum back into the crude oil price in recent days. As discussed recently the fall below $44 in WTI did look like a pessimistic crescendo and a solid base for this rally. At $50.83 WTI is now through the 61.8% retracement of the big fall to that level while Brent broke up through the overhead resistance I wrote about Friday. You’ll note in that piece I said I’d undertake a deeper cut if I was OPEC and that this would kick prices to the next level. But Baker Hughes rig count was up again last week meaning the battle between OPEC and North American oil continues.
- Here’s the break in Brent
- Gold is at $1,255 and copper had a cracking rally and is up at $2.57 almost 10 cents a pound from last week’s low as base metals and iron ore continue their recovery.
Have a great day's trading.