Stocks And Forex Markets Await The Bank Of Japan And Fed Decisions

Originally published by AxiTrader

Quick Recap

Stocks up a little and the US dollar gained overnight as traders wait for the twin events of the Bank of Japan and Fed announcements today. It’s potentially a huge day of volatility so the reality is that for the most part the price action is being driven by short term considerations.

Where to next depends on the banks. But Aussie dollar traders retain their ebullience and oil prices received a boost from OPEC comments trying to stem the recent falls.

What You Need To Know

Here’s what I picked up

International

For my thoughts on the BoJ and Fed meetings please see my earlier post.

• Stocks appeared to take some succorur from the weaker than expected print for housing starts (-5.8%) and building permits (-0.4%) overnight. There is some speculation flooding in the south was the reason behind the slippage. But in the end prices drifted into the close to remain largely unchanged as traders wait for the big events today.

• At the close the Dow Jones Industrial Average is up just 0.05%, the Nasdaq 100 is up 0.12% and the S&P 500 is essentially unchanged at 2139

• 10 year bond rates are a little lower this morning - US 10’s are at 1.684%, down 2.4 points, German 10’s are back below zero at -0.016% down 3.25 points (German PPI was -0.1% from +0.2% last in August yoy -1.6%). Japanese 10’s are down at -0.05% 2.16 points lower while UK 10’s rallied 7 points to 0.702% - close to a 2 week low.

• Part of the rally in UK rates could have been the new BoE policy maker Michael Saunders saying he didn’t think the UK would slow as much as many think but that was still room for lower rates if necessary.

• In Europe the banking crisis continues to simmer at the back of the room. Both Italy’s Monte Paschi and Germany’s Deutsche bank came under intense selling pressure again overnight falling 6.4% and 3.8% respectively. Monte Paschi has been weak for some time but Deutsche bank had rallied of its all time lows earlier this year. But it’s lost more than 50% of its value since the DoJ fine in the US was announced.

• It seems I’m not the one who thinks the Fed should hike tonight. Bloomberg reports “Two of the Fed’s 23 preferred bond-trading partners -- Barclays (LON:BARC) Plc and BNP Paribas (PA:BNPP) SA -- are betting against their peers and the bond market by forecasting officials will raise rates Wednesday. It’s the first time more than one dealer has gone against the consensus during the week of a policy meeting since last September”.

• “There is no perfect time -- there will always be some uncertainties in the data,” said Laura Rosner, senior U.S. economist in New York at BNP. “Despite a multitude of shocks through the last nine months, which have delayed the Fed, hiring has continued to be robust. There is a window of opportunity for the Fed to continue normalizing, and we think it’ll take it.”

• I couldn’t agree more.

• Now we wait. First for the BoJ and then the Fed tonight. Volatility, what ever the result is almost certain.

Australia

• The local market closed looking a lot better technically than it did during the day. After a jump at the open stocks on the ASX, especially the financials, struggled before a a recovery into the close which left the market above what I consider the important 5300 mark.

• At present SPI futures traders are overly impressed with the positivity in US markets with the December contract down 1 point. Perhaps that lack of move reflects the reality that today is an uncertain day for the local market. While we have nothing important on the docket save for the Westpac leading indicator of economic growth the BoJ decision will impact the Nikkei, sentiment in Asian and global markets, and by extension the S&P/ASX 200.

• Technically the SPI 200 (and the ASX) still looks like it has a topside bias of about 30-40 points before it runs into resistance. If it breaks we are off to the races.

• Yesterday’s RBA minutes were another indication the RBA may have a stronger easing bias than the market recognises. While the minutes reflected an on hold central bank the discussion around the efficacy of monetary policy and in particular the fact that borrower households receive a bigger gain than saver households lose with rate cuts suggests the RBA board believe monetary policy is still effective in Australia even with a cash rate of 1.5%.

• Worth noting also though is the highlighted the transmission mechanism between rate cuts and consumption has slipped since the GFC. That means any given rate cut gets less bang for its buck these days. Something which again suggests an easing bias – or at least a bias to action if inflation slips anchor or the economy slows.

Forex

• The US dollar is a little bit stronger, and resting just below short term trendline resistance in DXY terms this morning. It’s poised for a move depending on what the BoJ and Fed say.

• Elsewhere GBP/USD is under a little pressure on the back of the USD strength and BoE Saunders comments – it’s at 1.2984. Euro is back at 1.1159 and looking a little delicate – 1.1140 looks like an important level it needs to hold near term. The USD/CAD is back at 1.32 after rallying early with oil but it too is waiting on the central banks. The USD/JPY is at 101.75.

• For the antipodeans the AUD/USD and USD/NZD are the best performers of the big currencies overnight. The Aussie is up 0.28% at 0.7554 after finding support again overnight. The Kiwi was doing weall up at 0.7360 at one point before the weaker than expected dairy auction – which showed a rise in prices of 1.7% not the 5%+ many expected – knocked the wind from its sails. It’s back at 0.7313 as I write.

Commodities

• Crude Oil is where it was at overnight. OPEC is doing its darndest to talk the talk about the chances of a deal and also the longevity of a deal. After the Venezuelan oil minister’s comment that production needs to be cut 10% to bring the market into balance Monday night knocked oil lower the OPEC secretary general was out saying if a deal is done it could last as long as a year. That fed on comments from the Algerian oil minister who said that if an agreement is made to do a deal after the informal gathering then a new meeting for a decision could be made immediately after that meeting.

• It’s all aimed at stemming the risk of the recent pullback turning into a flight of the bulls. For the moment the words worked but throw in the The massive, and unexpected, draw of 7.49 million barrels and the October maturity WTI contract is surging, up 1.73% to $44.81 a barrel. The charts look like it is going to keep running for maybe another $2.

• Gold is still hanging onto the trendline support and waiting for the next risk/US dollar show to drop. It’s at $1313 and I still see $1300 as the key level to watch.

• Copper is hanging tough at $2.15.

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

• Australia - House Price Index (YoY) (Q2), House Price Index (QoQ) (Q2), RBA Meeting's Minutes (11.30am)
• New Zealand - GDT Price Index (n/a)
• China - Nil
• Japan - Nil
• Germany - Producer Price Index (MoM) (Aug), Producer Price Index (YoY) (Aug) (4pm)
• EU - Nil
• UK - Nil
• Canada - BoC Governor Poloz Speech (2.45am)
• US - Building Permits (MoM) (Aug), Housing Starts (MoM) (Aug), Building Permits Change (Aug), Housing Starts Change (Aug) (10.30pm); Redbook index (YoY) (Sep 16), Redbook index (MoM) (Sep 16) (10.55pm); 4-Week Bill Auction (1.30am); API Weekly Crude Oil Stock (6.30am)

Have a great day's trading