Originally published by AxiTrader
Key Takeaway
9pm Washington, 2GMT, and 1pm AEDT is going to be an important time for markets today as President Trump gives his first address to a joint sitting of the two houses of the US Congress.
There is much expectation about this speech. Some believe it’s a chance to reset, some hope for inclusiveness, but traders just hope for an expansion and clarification of the plans and timing around the administration’s tax and infrastructure plan. There is room for disappointment it seems given the leaks and chat at the moment are about the military spending side of the talk.
But as they wait, traders in the US are marking down stocks at the moment. That means the Dow Jones Industrial Average is on track to end the longest winning streak since 1987. That's especially the case given San Franscisco Fed president John Williams confirmed March really is a live meeting.
US data was pretty solid last night but despite that the US dollar lost substantial ground against the yen and the Swiss, a little against the euro, but it’s stronger against the pound and substantially so against the CAD. The Aussie is largely unchanged after a high of 0.7694 last night.
On commodity markets the chat is changing in oil markets and prices have backed off for crude. Copper is being buoyed by the supply disruptions and gold is sitting at $1253.
Beside president trump this afternoon today we also get the release of Austalia's Q4 GDP data and China's PMI data.
What You Need To Know (with a little more detail and a few charts)
- S&P 500 +7 (0.25%) 2363 (7.34 am Sydney)
- Dow Jones Industrial Average -35 (0.17%) 20,802
- Nasdaq 100 -33 (0.56%) 5,829
- SPI 200 -1 (0.0%) 5,682
- AUD/USD 0.7663 -0.08%
- Gold $1250 -0.3%
- WTI Oil $53.92 +0.24%
International
- Asian and Australian traders are again in the hot seat with president Trump’s speech to Congress happening in our time zone. It’s a rerun of the Brexit and US presidential election vote counts. But traders will be hoping that we don’t see the type of market ructions we did on those two days last year.
- Traders will also be hoping for clarification about the administration’s plans for tax and infrastructure. Readers know that I hold a strong belief the Trumponomics rally has been assisted by the sharp improvement in the flow of global economic data over the past 2 months. But there is equally no doubt that traders were able to focus on this positive data flow because they felt that president Trump’s economic, tax, regulatory, and infrastructure plans would also add a positive stimulus to the economy and US corporate earnings.
- So while there is likely to be a big focus by the president on repealing Obamacare and his military build up, markets – traders, investors, and economists – want clarification on his economic plan. It’s outline and timing so that markets then determine its impact on the economy, stocks, bonds, and the US dollar.
- Overnight Donald Trump, speaking to FOX news, gave himself a C for messaging with the American people. So there is a chance we see an attempt to reset. There’s also a sign here the polls are weighing on him and he’s taken note.
- On this, and where exactly this Trumponomics rally in stocks and the US dollar are right now a new Reuters poll released overnight shows that global investors have trimmed their exposure to stocks and increased their asset allocation to bonds. Reuters said its “monthly asset allocation poll of 48 fund managers and chief investment officers in Europe, the United States, Britain and Japan showed overall equity exposure in global balanced portfolios had been cut a fraction, to 45.5 percent of portfolios from 45.8 percent in January.
- The share of bonds rose to 40.3 percent from 39.9 percent in January. While the majority of participants expressed concerns about upcoming elections in Europe, especially in France, there was also a view that the reflation trade - a bet on economic growth and inflation - had run ahead of itself.” My bolding.
- US data last night was pretty solid. Certainly the latest update of Q4 GDP disappointed with a print of 1.9% which was 0.2% below the market expectation. But it showed the consumer sector was a bright spot in the economy. But it was the Richmond Fed index, Chicago PMI, and Case-Shiller house prices index which signalled the economy is in fine health right now.
- The Richmond Fed printed 17 from 12 last and 10 expected – that’s an 1-month high. The Chicago PMI jumped to 57.4 from 50.3 last month which was a 2-year high as new orders moved back into expansion and production hit a 13 month high. On the housing front Case-Shiller’s 20 city index rose 5.6% in the year to the end of December which was better than the 5.3% expected.
- Looking at this data it’s easy again to see why the Fed is trying to re-anchor market interest rate expectations so that they have the freedom to act at the March meeting without scaring the heck out of markets.
- On that San Francisco Fed president said this morning that a March rate hike is getting serious consideration.
- Germany 2-year bonds are in such high demand because of the ECB’s QE and safe haven demand that Germany was able to issue 4.15 billion euro’s at a record low yield of -0.92%. That’s fully 17 basis points below the previous record issuance rate. Elsewhere in Europe bonds in Italy and Spain continued to rally.
- The BoJ tweaked its bond buying operation yesterday in an effort to try to make it more transparent. The bank announced the dates in March when it intends to buy bonds so the market is fully aware of its actions. It did not however specify how much it will buy on these dates.
- Ahem. Europe just hit Chinese steel imports with a new round of punitive anti-dumping tariffs. Beijing is not happy.
Australia
- A disturbing turnaround on the S&P/ASX 200 yesterday with the day’s gains evaporating and the market closing down 12 points, 0.21% with a close at 5712. That close was after a high on the day of 5756 but the selling came in the last 2 hours of trade which could suggest some month end squaring.
- Overnight SPI traders have marked prices down another 6 points from where they were yesterday afternoon with the SPI siting at 5678. The price action on the SPI looks terrible right now. IT couldn’t make a new high when the physical market did. Ran into heavy overhead resistance and has now reversed. Yesterday’s candle looks awful – I know that’s not a proper charting term but it looks like a bearish engulfing candlestick to me. A move below 5670 would confirm.
- Today’s a big day for the economic fraternity with the release of Q4 GDP. After the partials have been received there is almost no chance that Australian growth in Q4 was negative. Thus the nation avoids a recession and moves within 2 quarters of the Netherlands world record run of growth without a recession.
- The market is focussed on a print of 0.7% or 0.8% growth for the quarter. That will leave the year on year rate around 1.9% or 2.0%. Hardly earth shatteringly strong. But strong enough to give credence to the RBA’s assertion growth is picking up. But I’ll be looking at the consumer side of the equation and domestic demand to see where that part of the economy was at as we headed into 2017. Yesterday’s big bounce in the ANZ consumer confidence index was a good sign that the apparent return to pessimism might have been transient. But high levels of debt and the desire to repay same will at some point become a hand brake on growth.
Forex
- The US dollar was a little weaker earlier this morning but comments from San Fran Fed president Williams have given it its mojo back.
- The yen had strengthened back into the support zone for USD/JPY in the 111.50-112.00 zone with a low of 111.70. But's t’s back at 112.34 as I write after Williams comments. That support is huge and a breach of 111.50 level wouldn’t necessarily fit the narrative of relative economic or central bank fundamentals. But the overnight move, which included a stronger Swiss franc as well as the yen could speak to disquiet about the rally in the US dollar.euro is largely unchanged at 1.0590.
- Taken together these three moves suggest a little forex market insurance has been taken out by traders worried that today’s speech might disappoint the stock and US dollar bulls.
- Sterling is under pressure again down 0.25% at 1.2410 while the Canadian dollar lost 0.71% with USD/CAD rising to 1.3274
- For the Australian dollar the bears remain above and the bulls are still buying. Today’s GDP release is going to be important for Aussie traders. As to will the direction of the US dollar after president Trump’s speech. We a thorough rejection of levels above 77 cents my sense remains that the Aussie is heading toward the low 76 region to really test support - and see if its still there.
Commodities
- Data compiled by Reuters based on ship movements and port data suggests China is still shipping iron ore at a steady clip. Reuters suggests February’s imports will be in the vicinity of 88.78 million tonnes. That would see the daily average for the month increase to 3.17 million tonnes from January’s 2.97 million average. No wonder inventories at China’s major ports are hitting record levels.
- Copper is back retesting the underside of the little wedge base/trendline that it broke out of after the little aborted foray to $2.82 a pound. Focus remains on the supply disruptions in Chile and Indonesia. Copper in the US is up 0.6% to $2.70 a pound.
- Gold is looking like it might have a top for this run after the previous days failure to hold above the 200 day moving average the night before last. Naturally that could all change depending on the tone, rhetoric, and message of president Trump’s speech today. A break of $1247 would suggest that gold is in for a deeper retracement.
- Oil traders are waiting on inventory data later this morning and having largely ignored the build in the past few weeks they seem to have suddenly started focussing on the effectiveness of OPEC’s production cuts. Reuters columnist John Kemp highlights the changing shape in the spread between the monthly contracts over the past week as a sign that the market is walking back from it strong belief OPEC will achive it’s goals.
- That’s been reflected in a spot price fall overnight with WTI down 0.6% to $53.72 and Brent is down 0.93% to $55.41. That’s despite news yesterday afternoon our time that the Saudis want Brent prices closer to $60 a barrel. But the market is very long at the moment and a report from US consultancy Rystad Energy that shale oil producers break even price has fallen to $35 a barrel will give the bulls – and OPEC pause.
- In pure price action terms, oil has tried, but failed, to break the top of the range. Yet it is still in a range and WTI has bounced back strongly from the overnight low of $53.16. A test lower is possible – but oil prices look like they are going nowhere fast unless either side of this $5 range breaks.
Today's key data and events (all times AEDT)
- Australia - AiG Performance of Mfg Index (Feb) (9.30am); Gross Domestic Product (YoY) (Q4), Gross Domestic Product (QoQ) (Q4) (11.30am); RBA Commodity Index SDR (YoY) (Feb) (4.30pm)
- New Zealand - Terms of Trade Index (Q4) (8.45am)
- China - Non-manufacturing PMI (Feb), NBS Manufacturing PMI (Feb) (12pm); Caixin Manufacturing PMI (Feb) (12.45pm)
- Japan - Capital Spending (Q4) (10.50am); Nikkei Manufacturing PMI (Feb) (11.30am)
- Germany - Markit Manufacturing PMI (Feb) (7.55pm); Unemployment Change (Feb), Unemployment Rate s.a. (Feb) (8pm); Consumer Price Index (YoY) (Feb), Consumer Price Index (MoM) (Feb), Harmonised Index of Consumer Prices (YoY) (Feb), Harmonised Index of Consumer Prices (MoM) (Feb) (12am)
- EU - Markit Manufacturing PMI (Feb) (8pm)
- UK - BRC Shop Price Index (YoY) (Feb) (11.01am); Nationwide Housing Prices s.a (MoM) (Feb), Nationwide Housing Prices n.s.a (YoY) (Feb) (6pm); Net Lending to Individuals (MoM) (Jan), Markit Manufacturing PMI (Feb), Consumer Credit (Jan), Mortgage Approvals (Jan), M4 Money Supply (YoY) (Jan), M4 Money Supply (MoM) (Jan) (8.30pm)
- Canada - Current Account (Q4) (12.30am); RBC Manufacturing PMI (Feb) (1.30am); BOC Rate Statement, BoC Interest Rate Decision (2am)
- US - API Weekly Crude Oil Stock (8.30am); MBA Mortgage Applications (Feb 24) (11pm); Personal Spending (Jan), Core Personal Consumption Expenditure - Price Index (YoY) (Jan), Personal Consumption Expenditures - Price Index (MoM) (Jan), Personal Income (MoM) (Jan), Core Personal Consumption Expenditure - Price Index (MoM) (Jan), Personal Consumption Expenditures - Price Index (YoY) (Jan) (12.30am); Markit Manufacturing PMI (Feb) (1.45am); ISM Manufacturing PMI (Feb), ISM Prices Paid (Feb), Construction Spending (MoM) (Jan) (2am); EIA Crude Oil Stocks change (Feb 24) (2.30am); Fed's Beige Book (6am); Total Vehicle Sales (Jan) (n/a)