Originally published by AxiTrader
Key Takeaway
It’s all about the Trump administration this morning as Treasury Secretary Mnuchin says both that we wants the administration's tax plan passed by the August recess and it’s too early to label China a currency manipulator.
But his boss in an interview with Reuters said China is the "Grand Champion" at manipulation. Clearly there is a narrative problem here.
But that hasn't hurt stocks in the US which recovered from a weak European lead after President Trump told a group of CEO's he would bring jobs back to the US. So, it's another record high for the Dow, a small gain on the S&P 500 and a dip on the Nasdaq 100.
US, and global bonds, are a little lower. Likewise the US dollar has dipped letting the Aussie hold nicely above 77 cents and pushing USDJPY back under 113.
Oil is higher, copper broke important support, and in what's probably the mosty interesting move of the night gold is up at $1249 an ounce.
What You Need To Know
- S&P 500+1 (0.1%) 2364 (7.57 am Sydney)
- Dow Jones Industrial Average +22(0.1%) 20,799
- Nasdaq 100 -27 (0.5%) 5,833
- SPI 200 -8 (0.1%) 5,751
- AUDUSD 0.7713 +0.08%
- Gold $1249 +0.91%
- WTI Oil $54.53 +1.42%
International
- Markets are still on tenterhooks waiting for the expected announcement of Donald Trump’s tax plan next week. Overnight though stocks seemed to recover some of their early losses after president Trump told a gathering of CEO’s that he would bring jobs back to the US. How exactly he’ll do that – in a material way – is still to be seen or understood.
- Treasury Secretary Mnuchin has put some colour and timing around the tax cut plans. Mnuchin told CNBC that “We are committed to pass tax reform, it will be very significant, it's going to be focused on middle income tax cuts, simplification and making the business tax competitive with the rest of the world”. He added that “We want to get this done by the August recess”. That's something that Trump seemed to confirm in the Reuters interview noting that repealing Obamacare is his first priority.
- Mnuchin added to the comments in the WSJ that the strong US dollar was a good thing telling Fox news that it was also “a reflection of the optimism of the economic plans" of the Trump administration”.
- On China, Mnuchin told Bloomberg that no announcement would come on its status as a currency manipulator – or not naturally – before the US Treasury’s April report. That echoes his WSJ interview. But it’s worth noting that just a couple of nights ago he was reported as asking the IMF to police its currency rules.
- Elsewhere senior members of the Trump administration are holding talks with their Mexican counterparts today. Both Rex Tillerson, Secretary of State, and John Kelly, Homeland security, are meeting to discuss, among other things, the new deportation rules the US administration has established just this week. But as I have been reporting over the past week Mexico seems to be spoiling for a fight. Reuters reports this morning that Mexican Foreign Minister Luis Videgaray said new immigration guidelines would top the agenda of meetings. He also said that Mexico would get directly involved in defending Mexicans where it felt necessary – “The Mexican government will take all the measures legally possible to defend the human rights of Mexicans abroad, especially in the United States,”.
- In a news conference after the meetings, including with the Mexican president, Rex Tillerson said he had very productive meetings and that the US and Mexico are two sovereign countries which will have differences.
- On the data front there was more good news for the US economy. But that is also more support for the Fed’s tightening cycle. Jobless claims were up a few thousand last week but the 4-week average of claims fell to 241,000 which is the lowest level since 1973. Thing about that in the context of the size of the US economy and labour force more than 40 years ago. It’s really an incredible statistic and underlies why the Fed is saying the labour market is tight. To that end Dallas Fed president Robert Kaplan said early this morning that the Fed should be moving to raise rates sooner rather than later. It’s clear the majority of Fed presidents seem to be trying to drag Janet Yellen toward a rate hike.
- But the primary dealer survey of the NY Fed sees May as the most likely date. That seems reasonable given the lack of available time for the Fed to move market expectations. But the Fed can get the same market impact via the signalling effect with its statement, dot plot, and Janet Yellen’s press conference can have.
- The ECB is again signalling it doesn’t believe – or perhaps trust – the recent uptick in growth and inflation. ECB chief economist Peter Praet said overnight that “The growth pattern is still very much conditional on a substantial degree of (ECB) accommodation” adding that the economies of Europe “are still fundamentally fragile so no complacency is the main message”.
- But Bundesbank president Jens Weidmann is more upbeat. Speaking in Frankfurt he said “The upturn in the Euro zone has consolidated and is increasingly secure. Indicators suggest that the recovery will continue”. We’ve heard this from Weidmann before. But there is clear tension between Mario Draghi and ECB staffers and where Germany sees the economic outlook.
- Speaking of Germany the 2-year bund – known as the schatz – is still printing record lows . Germany said it would issue more bunds if the market becomes dysfunctional because of this dash for the 2 year. It’s a weird world where there is apparent bullishness in stocks and solid risk appetite but German 2 years are printing record lows below -0.9% and gold has jumped up toward $1250.
- Here’s an interesting geopolitical wrinkle – North Korea appears to have criticised it’s big brother in China for marching to the beat of the US drum. While it didn’t actually name China the KNCA news agency said “This country, styling itself a big power, is dancing to the tune of the US while defending its mean behaviour with such excuses that it was meant not to have a negative impact on the living of the people in the DPRK but to check its nuclear programme”
Australia
- Yesterday was probably a weaker than expected day than most traders expected on the ASX with the physical market finishing down 20 points to 5785. Earnings season continues in earnest even though there is only a few days to go. Falls in metals and a growing sense that a fair chunk of the good news is already priced into certain sectors saw the miners come under heavy pressure yesterday. They are a big part of the index weight so that naturally weighed on the market.
- The financial sector could be interesting after APRA yesterday released updated guidance on residential mortgage lending. I’ve scanned the document in mark up and it looks like the impact is to tighten up the provision of credit to borrowers who might be considered marginal and to keep solid records of proof of serviceability. APRA also appears to be requiring borrowers to be essentially requalified when certain events occur with their mortgage – from fixed to floating, interest only to principle and interest and so on. Given the big banks make up roughly 25% of the Australian market’s capitalisation it will be interesting to see how the market reacts, if it does, today.
- As it stands though the SPI is largely unchanged from where it sat at the close of play yesterday afternoon with a fall of just 4 points. With the S&P essentially flat and as many stockssectorsecotrs, up as down as I right SPI traders probably have it right initially.
- On the charts though the 5789 level is increasingly looking like a hard barrier to break which could weigh.
- ON the data front yesterday’s release of Q4 CapEx was disappointing. It showed the hole in the economy is likely a little deeper than many first thought.
Forex
- Foreign exchange traders continued to take a move sanguine view on the Fed’s plans for rate hikes and the message contained in the minutes release yesterday than I feel is appropriate. My sense is the Fed continues to send a strong signal that the next rate hike really is going to happen sometime soon – either March which I put a 40% probability or May which I’d put at 70% on current setting.
- That should help the US dollar but it has not. Could it be the market is just long dollars? Certainly that’s a chance as I’ve reported previously big institutional investors see this as the world’s most crowded trade.
- So this morning we have the US dollar still unable to take out the 102 region in US Dollar Index terms. That suggests the head and shoulders pattern I identified as a chance last week could still be playing out.
- The US dollar is naturally important for all the major pairs given it is the other side to the crosses. So if it’s struggling there is room for currencies like GBP, the yen, or Aussie dollar to push a little higher. Euro as well but there are still some residual risks around the election season. But there is a chance the euro low is in for this run. It’s at 1.0573 this morning and would need to break up and through 1.0622 before traders would get excited by that prospect. That’s the level where the little down trend line comes in today.
- GBP is the leader of the majors this morning up 0.73% to 1.2540, the Aussie is holding above 77 cents at 0.7713, and the yen is looking strong with USD/JPY down at 112.71.
Commodities
- In what could be the strangest move of the night gold has surged back up and through the recent $1245 high and is sitting at $1249 this morning. With bonds down, stocks, and Fed speakers seemingly trying to drag Janet Yellen toward a March rate hike you’d be forgiven for thinking gold should be under pressure – yet the opposite is true.
- I won’t try and ex-poste rationalise it by fitting fundamentals to the price action. I’ll just say gold – like the Aussie dollar – has continued to find support on any dips since it broke up and through $1219/20. That’s important information. It’s now broken the recent range top and a Fibonacci extension of the recent move suggest that the $1254 level I was targeting a week or so back could be eclipsed with a move to $1277 if it breaks.
- Crude is really trying to climb toward and challenge again the highs of this recent range. WTI is sitting at $54.38, up 1.47%, this morning while Brent is up 1.25% to $56.24. But it seems for all of OPEC’s plans to try to drive prices a little higher one of its most influential members – Iran – has said further price rises could be counter productive :S
- Iranian Oil Minister Bijan Zanganeh was quoted by the Iranian Fars news service as saying “If oil prices specifically surge over $55 or $60 per barrel, non-OPEC producers will increase their crude production to benefit the most from the price hike. OPEC is determined to reduce its production to help manage the market.” Could this be the latest move in what is an enduring battle between the Saudis and Iranians? That’s something that must be contemplated as the Saudis seek to restrain the Iranian influence in places like Syria and Iraq. It’s just another wrinkle in the market traders will have to think about.
- For the moment though prices are higher. But clearly still respecting the current range top at the moment as the spectre of shale oil production continues to overhang the market.
- Copper has collapsed overnight. It’s been a high chance given that the combination of supply disruptions which should have been positive for process have utterly failed to reignite the price. Of course copper is caught with the rest of the base metal complex which is off a little and the key to the weakness seems to be some concerns about the impact on demand of the Chinese property tax which was floated yesterday. Yes it appears the unions and BHP Billiton Ltd (AX:BHP) is digging in at Escondida. Yes Freeport-McMoran Copper & Gold Inc (NYSE:FCX) still can’t get a permit in Indonesia, and yes Anglo American PLC (LON:AAL) has issues with its own Chilean mine. And yes there are still a lot of forecasts for higher demand in 2017.
- But price action is price action and copper has again broken out of a wedge formation. It’s the third or fourth time since the original climb into the $2.70 region last year that the metal with a Phd has set up and then broken such a pattern. As I say, price action is price action and $2.66/7 becomes resistance with $2.59/60 support.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Nil
- China - Nil
- Japan - Nil
- Germany - Nil
- EU - Nil
- UK - Nil
- Canada - Bank of Canada Consumer Price Index Core (MoM) (Jan), Bank of Canada Consumer Price Index Core (YoY) (Jan), Consumer Price Index - Core (MoM) (Jan), Consumer Price Index (YoY) (Jan), Consumer Price Index (MoM) (Jan) (12.30am)
- US - Michigan Consumer Sentiment Index (Feb) (2am); Baker Hughes US Oil Rig Count (5am)
Have a great day's trading.