Stocks Higher, Oil Leaps And US Dollar Pressured

Originally published by AxiTrader

Welcome to my overnight markets wrap.

Today I’m coming to you from Koh Samui where I’m 4 hours behind AEDT and it’s very early doors. So I’ll try to make this as effective as usual but it might be a little shorter than normal.

Feedback always welcome

Greg

Market Summary

There is nothing like a buy back from a big firm to get stock prices moving and the overnight news that Wal-Mart Stores (NYSE:WMT) is embarking on a 20 billion buyback helped lift US stocks overnight.

So we’ve got the S&P 500 up 0.23% to 2,550, the Dow Jones Industrial Average up 0.31% to 22,830 and the Nasdaq 100 up 0.1%. In Europe stocks were lower despite some solid German data and a kind of step back by the leader of Catalan. But stocks in London bucked the trend and finished 0.4% higher.

Locally SPI traders have taken their lead from the US and UK and have added 15 points overnight.

On forex markets, solid German export data helped the euro rally with UK production data doing likewise for sterling. As a result the US Dollar Index is down around half a percent, euro is up 0.6% and the pound gained about 0.48%. The commodity bloc lagged a little but the Aussie is still higher at 0.7778 while kiwi traders are still waiting on the negotiations to form government. NZD/USD is at 0.7069.

On commodity markets oil traders have the tiger by the tail and prices ripped higher overnight. Brent was up around 1.3% while WTI leapt more than 2.5%. Technical factors and OPEC jaw boning are the key drivers there. Gold is higher as the US dollar weakens and copper is looking good once again.

On the day today we get the Westpac consumer confidence data

Here's What I Picked Up (with a little more detail and a few charts)

International

• The Catalan leader Carles Puigdemont looks like he’s walking a fine line as he effectively proclaimed the region’s independence but said he’s suspending the process for a week to negotiate with Madrid. “I assume the mandate that Catalonia should become an independent state in the form of a republic ... I propose suspending the effects of the declaration of independence to undertake talks to reach an agreed solution,” he told the regional parliament. As you’d expect that, and some German data, helped the euro push sharply higher against the US dollar, with gains across the forex universe against other currencies as well. On the other side of the ledger imports were also stronger up 1.2%.

• Overall it’s a picture of stronger German growth, and it again reinforces the issues the ECB faces with its QE program and why German ECB officials worry that growth will eventually see inflation return. Indeed sources told Reuters that “the German government will raise its 2017 growth forecast for Europe's biggest economy to 2.0 percent, a sharp increase from its earlier estimate of 1.5 percent and the strongest rate since 2011”. The 2018 forecast is set to be increased asa well with a lift to 1.9% from 1.6%. These are far from shooting the lights out style growth rates. But they highlight again that the need for emergency stimulus has probably passed. And that of course was again euro positive.

• The data in question was German trade which showed exports surge 3.1% in August, the fastest pace of growth in 12 months as companies clearly remain unharmed by the stronger euro.

• Data overnight from the UK was positive for a change with the ONS reporting manufacturing output rose 0.4% in August against market expectations of a 0.2% increase.

• China said yesterday it will have no problem reaching it’s growth target of around 6.5%. Ning Jizhe, the head of the government’s Statistics Bureau said that the government’s policies to rein in the property market and speculation have been effective and will remain in place but have not derailed growth.

• The BoJ upgraded its forecast for four of Japan’s regions and was upbeat on the other 5. But despite this governor Kuroda again pledged to maintain QE and keep rates low.

• And just quickly on US stocks, folks. I am not calling a top. But I thought it worth highlighting that the S&P 500 is again bumping up against an important trendline which stretches back to 2011. This line was support until 2015 and has been resistance since. Just something I’ve been watching. A break above, or a retracement from is an interesting signal whichever way things go.

Australia

• The ASX put in one of those days where the price action really bothers me yesterday. Not only was it an inside day but the price action looks like it mapped out a long legged doji, which puts me on notice that the S&P/ASX 200 – traders and investors – are still not certain where the market is headed at this almost perfectly placed middle of the range since June. Naturally that makes sense given the competing forces at play in the domestic economy. So we saw 85 stocks rise, 90 fall and 25 stay essentially unchanged.

• In purely technical terms though while I’m on notice the next days trade, today is the key. To that end it is worth noting the SPI traders have added 15 points overnight to yesterday’s close at 5,738. If the market can just get up and through 5760 we could see a surge.

ASX200 Daily (Source:Investing.com)

• That said, for the moment, we’re stuck in a range with data like the NAB business survey suggesting overall that the economy is looking good but still having element which also suggest consumers, or at least retail, is under a little pressure.

• But at 14 for conditions, 7 for confidence, 19 for trading, 17 for profitability, and 7 for employment this is not weak data. Nor does it suggest a weak outlook for the Australian economy. Rather the opposite in fact. Alan Oster, NAB chief economist, said in his note that accompanied the release “Business conditions stayed rock solid in September” and are holding just below peaks seen prior to the GFC which are “three times the long run average”.

NAB Business Survey (Source NAB)

• BUT, Oster also highlighted that, “the sustained weakness in retail conditions [which is back in negative territory] should justifiably be raising doubts around expectations for any imminent (and sustained) rebound in consumer spending, although tough competition and other margin pressures are likely behind the result as well”. Is it Amazon (NASDAQ:AMZN) or is it households with debt up to the eyeballs and no headroom to continue buying at rates above wages growth? The August retail sales suggest it is the latter. But it is too soon to tell just yet.

• No wonder the ASX is stuck in a range. We have views to the topside and worries about the downside. Both are yet to be proven wrong.

Forex

• The US dollar failed to make its break last Friday reversing from important levels against the euro and in US Dollar Index terms. And that failure seems to have ushered in the return of the US dollar weakening story across global forex markets again in this early part of the week. Certainly, the euro is solidly higher at 1.1809, up 0.6%, this morning on EU specific news, and sterling is equally at 1.3202, up half a percent, on the UK production data. But in general this feels like a market that needs constant positive reinforcement to buy dollars and when they are absent the bid evaporates again.

• Naturally the rejection of the 1.1660 level in euro, and the topping pattern in USD/JPY are both an important part in that process. But this price action also fairly screams that traders have assimilated the Fed’s path of interest rates and still see the ECB as unlikely to be able to walk it’s Dovish line. That makes Draghi’s speeches this week and the next ECB meeting ultra important. This 1.1825/50 region for euro looks important while the yen looks like it is breaking down here at 112.37 down around 0.25% day on day. My system was triggered short on yesterday’s fall. And even with the recovery from the 111.98 low USD/JPY looks like it is rolling over.

• Looking at the commodity bloc and all three are stronger this morning with the Aussie doing best at 0.7778 up 0.34%. The Canadian dollar is up a quarter of a percent as oil prices rose and BoC Governor Wilkins sounded a little hawkish talking about her concerns fro household indebtedness in Canada. The kiwi lagged a little and is up just a few ticks at 0.7069 as traders wait on the negotiations on who will form government.
  

• Just quickly on the AUD/USD, I’ll do my daily note next, as I wrote above the NAB business survey was a positive but it also held the ingredients of something for the bears as well. The key though was that it was neither good enough, not weak enough to be a material impact on the AUD/USD.

Commodities

• I’m not sure if this headlines represents desperation on the part of the OPEC secretary general, is a misunderstanding of the way the US political economy works, or just jawboning to goose prices higher. But Reuters reported overnight that the “OPEC Secretary General urges U.S. shale oil producers to help cap global supply”. Yeah right, right? This is a rerun of something that he said a year or so ago, something which clearly fell on deaf producers ears. “We urge our friends, in the shale basins of North America to take this shared responsibility with all seriousness it deserves, as one of the key lessons learnt from the current unique supply-driven cycle," Barkindo said at a Reuters Oil summit. He added that US producers should get on board because “we have a shared responsibility in maintaining stability because they are also not insulated from the impact of this downturn”.

• Whatever the outcome though, these comments and what looks is reported to be a delayed reaction to the Saudis saying they won’t satisfy demand by restricting exports next month combined into a pretty solid rally for oil overnight. So this morning WTI is 2.72% to $50.93 and Brent bounced 1.33% to $56.33. In both oil markets the recent volatility suggests prices are being driven by some very short term players. But equally as I highlighted yesterday Brent, and WTI, held above some important Fibo levels before this bounce. Looking at Brent, the charts suggest prices need to move above the high of last Friday’s bearish engulfing candle to kick on once more – that level is $57.25.

• As highlighted yesterday, gold looks like it has turned the corner and has clearly broken up and through the little downtrend line since the highs. Clearly this is a move driven by the reversal in the US dollar, as it is for the euro, yen, and other pairs. And with rates still holding an upside bias gold has plenty of topside resistance – the first of which is $1297. Only if that level breaks – the first of the three orange lines – would the outlook for gold brighten.

• Copper is higher this morning up 1% as a positive global growth outlook and a solid bottoming process, and recovery off the recent lows combine to embolden the buyers. US Copper is at $3.05this morning up about 1%. Prices need to break $3.0730 to kick back to the highs.

Have a great day's trading.