Stocks Drift, The US Dollar Weakens And Bonds Rally

Originally published by AxiTrader

Key Takeaway

Stocks in the US are drifting around. The Nasdaq 100 made a fresh marginal record high, the Dow Jones Industrial Average is up a tiny bit and the S&P 500 is off less than a handful of points. In Europe stocks were down with the exception of London which seemed to cheer the news Article 50 will be triggered on March 29.

The washup is the SPI is down around 11 points now.

On forex markets both sterling and the euro underperformed reversing earlier strength. That was the case for many pairs but the Aussie, kiwi and Mexican peso continue to look solid for the moment.

Bonds in the US are rallying again with the 10's at 2.46% while the 2's are back below 1.30% this morning. That’s despite the fact that the Chicago Fed national activity index beat expectations with a print of 0.34 from -0.02 last month. Employment was particularly strong.

Gold remains elevated, copper is bothered by inventories again while oil is suffering from the same malady even though OPEC is signalling it will look to extend the production cut deal – if non-OPEC members join in.

What You Need To Know (with a little more detail and a few charts)

• S&P 500 -5 (0.2%) 2373 (7.10 am Sydney)
• Dow Jones Industrial Average -9 (0.04%) 20905
• Nasdaq 100 0.23 (0.00%) 5,901
• SPI 200 -11 (0.2%) 5,755
• AUD/USD 0.7731 +0.43%
• Gold $1233 +0.45%
• WTI Oil $48.21 1.17%

International

• Britain has informed EC president Donald Tusk that it will trigger Article 50 next Wednesday on March 29. Reuters reports that “the EU said it was ready to begin the negotiations and within 48 hours of the trigger on March 29, Tusk will send the other 27 member states his draft negotiating guidelines, which means that talks could start at the earliest in May”. After the French election is my guess.

• So we are at the beginning of a very long process. One in which each of the 27 members of the EU has an effective veto of Brexit negotiations. SO there will be much ebb, flow and grandstanding. The FTSE 100 didn’t mind though – it finished at a new all-time high.

• There is plenty of meaty data in the UK tonight which could move the markets.

• On France it’s presidential debate night and even though one poll showed Emmanuel Macro has finally taken a small lead over Marine Le Pen for the first round of voting – making it even harder for her to become president you would think – the French/German bond spread widened again last night as traders worry that she might end up pulling a surprise. A large part of this is because Macro is untried and Fillon has imploded. But we’ll see.

• Germany’s so-called wise men rejected claims that the nations trade surplus is a problem or imbalance. Christoph Schmidt, head of the panel of 'wise men' said “The German current account surplus is high, but this does not signal a macroeconomic imbalance” rather he blamed the ECB’s policy settings as being “too expansionary” and suggested “The ECB should therefore start winding down the bond-buying program as soon as possible”. This change is coming to the ECB and is likely to eventually see the Euro break higher I reckon.

• Chicago Fed president Charles Evans reinforced two key tenets of the Fed’s message from last week’s tightening. First that he thinks another two hikes are about right for 2017 and second that Trumponomics stimulus could add to that. He told the Fox network “As I gain more confidence in the outlook I could support three total this year. If inflation began to pick up, that would certainly solidify (that expectation). It could be three, it could be two, it could be four if things really pick up”.

• FBI director James Comey last night confirmed two important things. The first was that there was no wiretap on president Trump’s campaign. The second was that the FBI is still investigating the Russian hacks and attempt to influence the US election. And that includes an investigation into associates of the president. This is a big story and one the media is running with. But recall though that James Clapper – Obama’s DNI – said recently there was no evidence of Trump team – Russian collusion however.

• It’s something – the ongoing investigation – which could trouble markets. But only at the margin

Australia

• Down 21 points yesterday. That’s where the S&P/ASX 200 closed after a 0.36% fall to close at 5778.91. The banking and financial sector is under pressure as concerns over the state of the bubblicious housing market are top of mind. Indeed ASIC chief Greg Medcraft said yesterday he’d thought for a while there might be a bubble forming.

• Mining stocks gave back some recent gains too and with base metals lower in the past 24 hours that could continue. And of course the launch of Amazon (NASDAQ:AMZN) in Australia has folks spooked in the consumer sector.

• So with all this and a lower S&P 500 it’s no surprise that SPI traders have market prices down another 13 points to 5753 this morning. But have a look at a physical ASX200 chart and you can see the wedge being formed. A break either side – these patterns are usually resolved to the downside – is needed to kick the index outside a fairly tight range.

• Just quickly on the economy. The Commonwealth Bank’s business sales indicator was released yesterday and showed overall turnover growth for debit and credit cards through the banks vast network has slowed sharply. A picture tells a million words in this case. And if you say low wages, peaky housing prices, a mountain of debt, and a savings rate at post GFC lows very quickly you might just get a sense of the mountain the domestic economy has to climb for consumers to pull their weight in the year/years ahead.

• Today we get house prices and the RBA minutes. Both will be very interesting.

Forex

• The euro (1.0736) and pound (GBP/USD 1.2352) both reversed away from overhead resistance overnight reinforcing these levels and helping the US dollar regain its footing. But only on a very narrow basis. The Aussie is still comfortably above 77 cents, yes I know – for the moment. Likewise the kiwi has put in a solid performance and the currencies of South Korea, Mexico, Brazil, Singapore, and many other no Major currencies are in fact stronger against the US dollar this morning.

• What it means is that the reverberations about the path of Fed policy, and policy divergence more broadly, continue to be a key driver of forex markets. Traders read the fed as dovish last week and that continues.

• But what is ailing euro and the pound – besides obvious resistance overhead is the uncertainty of the looming Brexit trigger. Certainly many investment houses expect the GBP, in particular, to come under intense pressure. But the EU is on the other side of this debate and with the first presidential election debate being held in France Monday night it’s a reminder of the elections source of uncertainty.
  

• So euro is left with an ugly, and bearish, daily candle. It’s trading at 1.0736 as I write that’s largely unchanged on the day but below the 1.0777 high. 1.0800/10 is still the level euro needs to break to get me excited.

• The Aussie and kiwi have been the standouts of the majors up 0.38% to 0.7727 and 0.46% to 0.7044 respectively. The Aussie made a high up and through the 0.7740 resistance at 0.7747 overnight before it dipped back to currently levels. The bulls will still be nervous up here. But while EM currencies and the yen are still pushing the US dollar lower the Aussie can maintain it’s bid tone – even with base metals lower.

Commodities

• Crude oil is still struggling as OPEC signals its production cuts aren’t working – yet. I say yet because sources are saying the deal might be extended with an OPEC delegate telling Reuters “ An extension is needed to balance the market” but he added “any extension of the cut agreement should be with non-OPEC”.

• The question of course is whether Russia and other non-OPEC members want to join in. That’s especially the case when the OPEC message is clear. First our plan hasn’t worked as well as we hoped – demand has dropped off, inventories are still stubbornly high. And second OPEC’s message underwrites US shale oil investment and in doing so cruels itself.

• As a result WTI is stuck below the uptrend line from the 2016 lows sitting at $48.25 this morning, down 1.09%. Brent looks better technically and has done better overnight – it’s down 0.29% to $51.61 as the spread between the two oil benchmark opens heads back toward 2-year wides.

• Here’s the WTI chart. Key levels $47.00 and $46.65/70 then $50.20/50.

• Gold is benefiting from the US dollar weakness but also political uncertainty I think. We have North Korea as a real flash point, G20’s trade capitulation is another that may worry many about the global outlook, China building on a Philippine claimed shoal, and the reaction of president Duerte.

• The bulls have it for the moment but the price needs to break above $1237 (61.8% of February/March selloff) if it is going to run higher. My sense based on the 4 hour chart is that at the moment that is a high hurdle. Gold was trading $1233.86 a short time ago (5.44am).

• Copper dipped back as inventory worries surface again. This time its in China. But the key here is that after an initial pop to $2.82 a pound on the Escondida and other mine disruptions copper reversed quickly. That send a strong signal about the overall structure of the market. It hasn’t collapsed – just consolidated at elevated levels. But yesterday was a bearish engulfing day – so it might be back below under $2.60 for copper which is currently trading $2.6570.

Have a great day's trading.