Stocks, The US Dollar And Bonds All Drifted Lower Overnight

Originally published by AxiTrader

Quick Recap

No need to over egg it today. Markets just seemed to drift a little overnight and reverse some of last week's selling in US bonds and buying in the US dollar. The Aussie remains firm even though stocks across the globe were lower again.

Oil is a little weaker, gold a little stronger as traders await plenty of data, events, and catalysts as the week progresses.

What You Need To Know

International

• An interesting 24 hours where stocks continued to slide in non-Japan Asia, Europe and the US. It would be easy to say it was the residual impact of Janet Yellen’s speech on Friday but the fact that US 10’s rallied a few points back to 1.76% means that this is really about stocks themselves. What’s really interesting over the past two sessions is that stocks are off even though the balance of the earnings reports have been well and truly in the positive column.

• Speaking of earnings in the US Bank of America Corporation (NYSE:BAC) beat with a 41 cent EPS print against 34 cents expected. That continued the good results from the US banking sector but it didn’t stop financials, and the majority of S&P 500 sectors trading in the red. The worst performer was energy as crude pulls back from recent highs and traders wait to see the ink on the deal. Equally though both consumer cyclicals and non-cyclicals were lower. Charles Schwab (NYSE:SCHW) and Hasbro (NASDAQ:HAS) (Transformers J) also beat. On the negative side of the ledger so far overnight JB Hunt Transport and Rogers Communications missed.

• Back to the Fed now and Fed vice-chair Stan Fischer said overnight “we are very close to our targets” of full employment and 2-percent inflation. He added that low rates make the economy more vulnerable to adverse shocks but tempered that by saying there is no current threat to financial stability. But he again kept to the recent party line we’ve been hearing from the Fed that raising rates “is not that simple” given aging populations, weak demand, and low investment may have dragged down the globes potential growth rate. That sounds like a recipe for the experiment to run the economy hot and see what happens.

• On the data front overnight in the US industrial production rose 0.1% after the 0.5% fall the previous month against market forecasts of 0.1%. The New York Empire Manufacturing index fell to -6.8 this month from -1 .99 in September which was both a poor outcome and much weaker than market expectations of a print of -1.

• In Europe inflation data showed EU inflation rose 0.4% month on month and year on year still too low for ECB comfort but back at 2 year highs.

Australia

• The S&P/ASX 200 had a shocker yesterday falling 0.8% to finish 46 points lower at 5388. Naturally with the arrest of its staff Crown Ltd (AX:CWN) was the worst performer and its worries took the rest of the gaming/betting/casino sector lower. Telco stocks were lower as well but half the banks and BHP Billiton Ltd (AX:BHP) and Fortescue Metals Group Ltd (AX:FMG) were higher. The big four were targeted in a New York Times piece about Australia’s too big to fail sector with the Commonwealth Bank Of Australia. (AX:CBA) in particular coming under the most scrutiny.

• Overnight though weakness in BHP and Rio in London, falls on the FTSE 100 and other EU bourses and the dip in US stocks has the Australian market pointed to a lower open again today even after yesterday’s drop. The December SPI 200 contract was off 7 points to 5362 with 30 minutes before the US close but it managed to finish up 3 points.

• That level satisfies the pullback I was looking for and talking about last week but as you can see in the chart below the technical picture suggests further falls are in the offing for the SPI. 5382 is the level on the physical ASX 200 I mentioned as my garden variety pullback yesterday in the physical market. If that breaks 5345 becomes the next target and level of support. That would roughly equate with the trendline on the SPI chart below.

• On the docket today we have a speech by RBA governor Phil Lowe on Inflation and Monetary Policy around 8am, we have the ANZ weekly consumer confidence number at 9.30am and then we get the release of the minutes to the last RBA board meeting at 11.30am.

Forex

• The US dollar retains its strength but is off the highs this morning in what seems like a reaction to support in the Euro, the Yen’s inability to kick through minor Fibonacci resistance, and the mild rally in bond rates in the US. IN USD index terms the dollar is at 97.88. We have to let the top pick itself but Monday’s price action is a warning that the US dollar may need to refresh itself with a pullback before it runs higher again. Here is the chart from my Reuters Eikon terminal.

• Looking at specific currencies and the Yen is a little stronger this morning after yesterday’s Tankan rose to 10 and stocks went off a little overnight. That’s a natural role the Yen plays if risk goes off – or there is a sense it could be going off. The US dollar dip doesn’t hurt either so USD/JPY is at 103.79 this morning and like the Investing.com USD Index looking a little toppy now it continues to fail at the minor 23.6% Fibonacci resistance.

• EUR/USD pulled up nicely at the 1.0960 region we targeted last week and is sitting at 1.0995 this morning. This level remains one to watch short term and the ECB meeting Thursday night is important. But there is a lot of water to flow under the bridge yet.

• Elsewhere GBP/USD is still under a little pressure at 1.2191 but doing better than this time yesterday. Tonights release of inflation data could be an interesting one. On the commodity bloc the Aussie is lagging the Kiwi which has jumped 0.63% to 0.7128. That seems like a courageous move by traders given the New Zealand CPI is out around 8am this morning.

• Having lagged the Kiwi the AUD/USD is still mildly higher at 0.7626 off the low of 0.7578. The Aussie retains a bid and the goodwill of traders – but it is still mired in its range. That’s despite the growing chorus of calls that it will break lower and head toward 70 cents,

Commodities

• Crude Oil drifted a little lower to $49.94 in WTI terms and $51.54 in Brent Oil terms. That’s a dip of around 0.8%. Price action held above last week’s low and although traders still want to see the ink on the OPEC deal the Russian industrial production data released overnight shows why it, and the Saudi’s are moving toward a deal. IP in Russia is now down 0.8% yoy, lower than the 0.6% expected and at its biggest dip in 8 months. I still believe it is an economic and fiscal imperative for many oil producers to address the price and drive it a little higher in the medium term.

• Gold is up $6 to $1256 and Copper dipped again to $2.096.

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

• Australia - Westpac Leading Index (MoM) (Sep), New Motor Vehicle Sales (MoM) (Sep), New Motor Vehicle Sales (YoY) (Sep), RBA Meeting's Minutes (11.30am)
• New Zealand - Consumer Price Index (QoQ) (Q3), Consumer Price Index (YoY) (Q3) (9.45am)
• China - Nil
• Japan - Nil
• Germany - Nil
• EU - Nil
• UK - Retail Price Index (YoY) (Sep), Retail Price Index (MoM) (Sep), DCLG House Price Index (YoY) (Aug), Producer Price Index - Output (YoY) n.s.a (Sep), Producer Price Index - Output (MoM) n.s.a (Sep), PPI Core Output (MoM) n.s.a (Sep), Producer Price Index - Input (YoY) n.s.a (Sep), Producer Price Index - Input (MoM) n.s.a (Sep), PPI Core Output (YoY) n.s.a (Sep), Consumer Price Index (MoM) (Sep), Consumer Price Index (YoY) (Sep), Core Consumer Price Index (YoY) (Sep) (7.30pm)
• Canada - Manufacturing Shipments (MoM) (Aug) (11.30pm)
• US - Consumer Price Index Core s.a (Sep), Consumer Price Index (MoM) (Sep), Consumer Price Index n.s.a (MoM) (Sep), Consumer Price Index Ex Food & Energy (MoM) (Sep), Consumer Price Index (YoY) (Sep), Consumer Price Index Ex Food & Energy (YoY) (Sep) (11.30pm); Redbook index (MoM) (Oct 14), Redbook index (YoY) (Oct 14) (11.55pm); NAHB Housing Market Index (Oct) 91am); 4-Week Bill Auction (2.30am); Total Net TIC Flows (Aug), Net Long-Term TIC Flows (Aug) (7am); API Weekly Crude Oil Stocks (7.30am)

Have a great day's trading