Originally published by AxiTrader
Market Summary
Interesting price action again in US stocks over the past 24 hours. S&P futures were down around 8 points in Asia trade yesterday but they are back in the black this morning as the physical index holds onto positive territory with small gains for the session in New York.
Europe – ex-London – had a positive night as well and this combination has encouraged SPI200 traders to reverse yesterday’s sell off with a 16 point gain.
Bond markets continue to take the Fed’s comments that a taper is coming – as soon as this year according to San Francisco president Williams – with the 10 year at 2.34% and the 2 year sitting at 1.24%. Maybe that might change with a booming non-farms tonight?
On forex markets the Euro is down a little (1.0644) but not hurt to much by a triumvirate of ECB speakers who said the bank is in no hurry to change rates anytime soon. Sterling (1.2470) and the Yen (USDJPY 110.75) are flat while the Australian dollar is sitting at 0.7539 off a low around 0.7529.
The Canadian dollar lifted a little with crude oil which respected the trendline and bounced 0.9% to $51.61 in WTI terms. Gold has lost a couple of bucks and remains unable to break its 200 day moving average. copper gave back 1% of the previous days 2.5% gain.
On the data front yesterday’s Caixin services PMI for China (52.2 v 53.2 expected AND 52.6 last) was disappointing. But overnight the release of jobless claims – which dropped to 234,000 against expectations of a 250,000 print – reinforced notions that after this week’s ADP employment report that tonight’s March non-farm payrolls could be a boomer. The official forecast average still appears to be 175,000-180,000 but my sense is traders – the whisper number – will be looking for a bigger print.
And of course we have the meeting between presidents Xi and Trump in Florida.
What You Need To Know (with a little more detail and a few charts)
- S&P 500 +5 (0..2%) 2357 (7.17 am Sydney)
- Dow +15 (0.07%) 20662
- Nasdaq +14 (0.25%) 5,878
- SPI 200 +14 (0.11%) 5,864
- AUDUSD 0.7541 -0.34%
- Gold $1251 -0.3%
- WTI Oil $51.74 +1.15%
International
- As noted above the San Francisco fed’s John Williams said overnight “It would make sense to take the next step in terms of starting the normalisation process of our balance sheet. My own view would be towards the end of this year would be a good time to take that next step, assuming the economy progresses."
- The decision by US republican Senate leader Mitch McConnell to go nuclear and change Senate voting rules to end the Democratic filibuster over the confirmation of Supreme court nominee Neil Gorsuch are likely to have long term impacts on president trump legislative agenda as it could galvanise opposition. Worth noting though the Dem’s did it back in 2013 for other presidential nominees president Obama was putting up.
- Why this is important politically is that it’s clear there may need to be hands across the aisle to get some aspects of Trump’s tax and infrastructure spending plans through. And if that can’t be achieved the rally could falter.
- Indeed Larry Fink, the CEO of BlackRock – the worlds biggest investor by AUM, said stocks might be overvalued if we don’t see more action from the Executive and legislative branches on this reforms. Talking to CNBC Fink said “We don’t have the tax reform that we’re expecting. If we don’t see a true deregulation, I think the markets would have some setbacks there”. But he went further adding, “If you believe that it would be longer for these to transpire and we have an economy that is slower because of uncertainty, then I would say the market is, the US equity markets are probably higher than they should be”.
- Recall the Fed made a warning on valuations yesterday as well.
- Moving across the Europe, Eurogroup chairman Jeroen Dijsselbloem said overnight that he wants to try to lower tensions on the whole Brexit negotiations process. “Let's try to minimise the damage” he said. I’m guessing he means to both sides here not just the UK. Just a guess but I’m not sure Europe wins by trying to give Britain a black eye.
- And of course the big news story out of Europe last night was the ECB’s triple attack on the hawks. Comments from ECB president Draghi, his vice-president Vitor Constancio, and ECB chief economist Peter Praet all made the point that now is not the time to change policy or guidance.
- Draghi said, “"I do not see cause to deviate from the indications we have been consistently providing," Draghi said at a conference in Frankfurt. Before making any alterations to the components of our stance – interest rates, asset purchases and forward guidance – we still need to build sufficient confidence that inflation will indeed converge to our aim".
- The Germans were at it again though. Hans-Walter Peters president of the German banking association said the ECB needs to rethink its current policy.
- Syria folks – thinks might be about to kick off and the US and Russia may end up on opposite sides of the red line. Yesterday president trump said the poison gas attack had changed his view on Syria and the New York Post reports that US secretary of State rex Tillerson said that “steps are under way” to get rid of Syrian President Bashar al-Assad. Oil and gold traders might want to keep a very close eye on this as they will be natural beneficiaries if something kicks off more agreeively in a military sense.
- Oh and while I’m on global politics Philippine president Duterte has ordered troops to occupy islands the nation claims in the South China Sea. :S
- So now we wait for the non-farms tonight. And we also wait to see if anything comes of the meeting between trump and Xi in Florida.
Australia
- There are now 5 miners who have declared force majeure after cyclone Debbie belted the Bowen basin. That’s helped drive coking – and thermal – coal sharply higher benefitting that sector of the local market. Or at least the firms that can take advantage of the surge – as ephemeral as it may end up being.
- On the flip side though the banking sector came under pressure again yesterday. The macro-pru and macro-economic environment has soured a little for the Australian financial sector and while there is no sign of a credit event that might truly sap earnings and capital APRA and the Reserve bank have signalled that they are trying to restrict demand for financial institutions product.
- The reason I’m blathering about this is that the Big 4 make up about 25% of the S&P/ASX 200 index and that in turn impacts the SPI200 CFD we trade at Axi. So to that end a big engine of the recent stellar performance of the SPI and ASX may be spluttering. Something to think about and also something that reinforces to me that the Australian stock market – in index terms – now needs to see a surge in US stocks to make further sustainable headway.
- Anyway here is the chart of the SPI200 from my Reuters Eikon – there is still headroom if the March high is taken out. But it has to be taken out first.
- I’m concerned about the economic outlook for the domestic economy as there is a behavioural shift – or at least I think there will be one – by consumers from their wealth accumulation through housing to their debt reduction plans on housing.
- But the consensus of the ratings agencies according to the AFR this morning is that housing is set for “orderly” correction. The AFR reports “Representatives from Fitch Ratings, Moody's and S&P Global Ratings agreed that although the Australian banking system was among the best-regulated in the world, risks were rising in line with growing levels of household debt and property prices. Among the scenarios they could envision flowing from high levels of indebtedness, surging prices and macro-prudential intervention was a weakening of house prices in Victoria and NSW and higher levels of loan losses for the banks.
Forex
- The explicit ECB message should hurt the Euro given the Fed is moving in the opposite direction. It did at the margin overnight with the Euro down 0.2% to 1.0640 and a retest toward support at 1.0580 seems on the cards. If that breaks – non farms will be the key – or holds a big reaction would be expected.
- The USD/JPY’s low at 110.28 was again in the zone above important Fibonacci support and the recent low. It could be building momentum for a rally akin to the one we have seen after the triple bottom in WTI recently.
- For the Aussie the pressure remains even though stocks had a better night. The sellers came for the battler after the weaker than expected Caixin services PMI in China yesterday. But As I have been writing recently there is also a growing sense we may have seen “peak reflation” and that has impacted sentiment toward the Aussie. My sense is the market is trying to find the true level of support. The low last night was just 4 points above the top of my 0.7523/25 target so in many ways near enough is good enough at this juncture.
Commodities
- Gold is down as risk appetite improved. As noted above it will look good if something kicks off in Syria and, heaven forbid, the South China Sea’s disputed averages. Naturally of course gold is also hostage to the US dollar which was a little stronger overnight.
- Copper pulled back a little last night giving back about 1% after the previous day’s stellar 2.5% rally. It’s retesting the break out.
- Speaking of trendlines WTI had a cracking bounce of the little recent line it broke back above overnight. It’s up 1.08% to $51.70 while Brent is up 0.88% to $54.84. That’s very positive price action technically.
- Worth noting thoug – and something I don’t actually know the long term implications of – Reuters reports the Saudi’s are discounting prices in Asia – their biggest client – as OPEC loses market share to US, Canadian, Brazilian, and even north Sea crude.
Have a great day's trading.