Stocks, Dollar And Bonds Down Despite More Strong US Data

Originally published by AxiTrader

Key Takeaway

The US dollar is struggling under the weight of a long market as it fails to capitalise on the continued run of solid data in the US. The US Dollar Index broke lower, USDJPY reversed and euro is rallying – not a typo. But to the disappoint of many and the surprise of few the Aussie has failed to capitalise as traders become wary above 77 cents.

Stocks are a little lower this morning as well with US indexes retreating from new record highs and European bourses mostly lower. It’s the first day in seven that the S&P 500 has fallen and some are saying president Trump’s press conference affirming his commitment to military spending.

Bonds are a little lower, crude is up a bit as OPEC suggests it could extend its production cut deal, and gold is back near $1240 and ounce.

What You Need To Know

• S&P 500 -5 (0.2%) 2344 (7.20 am Sydney)
• Dow -14 (0.06%) 20,598
• Nasdaq 100 -12 (0.2%) 5806
• SPI 200 -3 (0.1%) 5761
• AUDUSD 0.7690 -0.2%
• Gold $1233 +0.4%
• WTI Oil $53.37 +0.49%

International

• European stocks were a little lower and although their US counterparts were higher at one stage they are in the red as I write with about 90 minutes to go before the close. It’s not a big fall by any stretch of the imagination. After such a solid run who wouldn’t expect some sort of pause in the rally.

• Bonds rallied with US 10's down 4 points to 1.45% preserving the integrity of that pennant I talked about yesterday a weekly basis.

• US data was again on the stronger side of expectations last night. The Philly Fed manufacturing index leapt to 43.3 from the 23.6 level last month and the 18 level forecasters expected. That’s a 33 year high. Jobless claims were again low printing 239,000 for the initial read over the past week. Housing starts fell 2.6% as expected.

• Both Secretary of State Tillerson and Defence Secretary Mattis reiterated that Russia still needs to prove itself and that the US stands for itself and its allies first. Tillerson did say however that the US would work with Russia where there was common ground.

• President Trump, in a White House press conference said that the US needs to have good relations with Russia because they are a very powerful nuclear nation and nuclear holocaust is like no other (or words to that effect). Mmmmm.

• ECB minutes were out last night and showed that Europe’s central bank is still hell bent on its program of monetary stimulus. Like Mario Draghi said at the time the minutes reflect that the governing council believes the uplift in inflation is transitory and growth threatening. “The Governing Council was seen as well advised to remain patient and maintain a 'steady hand' to provide stability and predictability in an environment still characterised by a high level of uncertainty” the minutes said.

• Italy is pushing the envelope putting 5 billion euro of state money into two smaller banks while Greece is still fighting with the EU over the new bailout. The embattled nation says it will not put another euro of austerity in place.

• China relaxed trading rules for futures trading yesterday while its FDI data showed a fall of 9.2% YoY of outbound flow from China.

Australia

• The S&P/ASX 200 made a marginal new high for the year yesterday with a run to 5833 before pulling back to finish up 7 at 5816. Futures are suggesting a fairly flat open today with the SPI March contract up 1 point to 5765.

• The ASX can’t rally if the US markets aren’t kicking on. There is just too much already priced into local markets as the chart I’ve been using for some time now shows.

• Yesterday’s employment data was difficult to reconcile. Unemployment of 5.7%, employment up 13,500 in total, full-time down 44,800, but hours worked up 10.2 million hours for the month. No wonder the ABS is trying to get the market to focus on the trend data not the seasonally adjusted release.

• But the key takeaway was that traders and investors were a little nonplussed. I think that’s because both the NAB survey and the Westpac employment index released this week suggest an uptick in the employment situation. We didn’t get it in January so we’ll all be watching very closely in the months ahead.

Forex

• Yesterday I wrote a piece on the US dollar’s failure to capitalise on the strong data and growing expectations of Fed hikes and suggested that meant it needed to head lower. The move over the past 24 hours has confirmed that with the little daily uptrend from the 99.20 low in the US dollar index breaking. It looks like the DXY is mapping out the right shoulder of a head and shoulders pattern.

• That suggests a move back toward this month’s lows which must hold or the US dollar is in for a big reversal.

• Looking specifically at forex levels the euro is up another 0.6% at 1.0662. That’s a nice recovery from the previous night’s low near 1.05 and naturally accords with the reversal in the US dollar index. The yen was stronger again as well. As I highlighted yesterday the fact that USD/JPY didn’t rally on the comments from prime minister Abe that president Trump understood monetary policy wasn’t currency manipulation was a sign USD/JPY was struggling. So it’s back at 113.22 this morning. Sterling is higher as well at 1.2491.

• The Aussie struggled over the past 24 hours. Yesterday’s employment data was okay but it wasn’t great. The 13,500 increase in jobs was better than expected but the 44,800 fall the ABS reported in full time jobs showed underlying weakness. Now not for a moment do I believe that 44,800 full-time jobs were actually lost. But the data we have is the data we have and while the ABS reports rubbery numbers like this traders have no option but to trade them. So the Aussie is lower this morning at 0.7696.

Commodities

• I want you to do something for me. What’s your first thought when I say OPEC is whispering that it might extend its production cut deal. So what did you think? My first thought is “they must need to”. That is, they aren’t getting the traction and move higher they thought they’d get from oil prices.

• I say that as way of introduction to the overnight news that “sources” are saying OPEC might do just that – extend the cuts beyond the initial 6 months. An OPEC source told Reuters that “If we have full commitment by everybody, inventories will go down. By sometime in the middle of this year, maybe they will go near the five-year average. But that's if you have 100 percent compliance. The question is, by how much will they fall? For that, you have to wait and see."

• Which is the point right! The API weekly inventory data showed a 24 million build in inventories over the past 2 weeks. It’s still too early to see the impact of the production cuts really but this is something that hasn’t exactly fit the OPEC narrative. And if we learned anything last year it is that OPEC has become adept at jawboning the market.

• Anyway, this morning Nymex Crude is up 0.56% at $53.41 while Brent is largely unchanged at $55.77.

• Gold’s rally is on again. After neatly testing the support at $1219/20 again the night before last it’s up at $1239.88 and on its way back to the recent high just below $1245 it seems. Gold’s performance has been instructive to me in that it suggests there is still a real level of disquiet and uncertainty in markets at a macro level. If $1245 breaks then gold looks set to head toward the mid $1250’s.

• Copper is down again having had a failed break higher on the Escondida mine strike. At $2.71 it hasn’t negated the break entirely but it’s 11 cents from the high and looks set to retest support in the $2.67 region. Reports are that copper was down because Chinese outbound investment fell in January – ahem, that’s what capital controls do. But if that’s the reason for the fall then prices are really under pressure. I’m watching the uptrend closely.

Today's key data and events (all times AEDT)

• Australia - Nil
• New Zealand - Retail Sales ex Autos (QoQ) (Q4) (8.45am); Retail Sales (QoQ) (Q4) (n/a)
• China - Nil
• Japan - Nil
• Germany - Nil
• EU - Current Account n.s.a (Dec), Current Account s.a (Dec) (8pm)
• UK - Retail Sales ex-Fuel (MoM) (Jan), Retail Sales ex-Fuel (YoY) (Jan), Retail Sales (YoY) (Jan), Retail Sales (MoM) (Jan), Public Sector Net Borrowing (Jan) (8.30pm)
• Canada - Canadian portfolio investment in foreign securities (Dec), Foreign portfolio investment in Canadian securities (Dec) (12.30am)
• US - CB Leading Indicator (MoM) (Jan) (2am); Baker Hughes US Oil Rig Count (5am)

Have a great day's trading.