Stocks Hit Record Highs And OPEC Is Exercising Its Jawbone Again

Originally published by AxiTrader

Market Summary

It was a solid night for global stock markets with the big US indexes in record territory once again.

The S&P 500 closed up a whopping 18 points, 0.75%, to 2,430 while the Dow Jones Industrial Average gained 0.65% and the Nasdaq 100 was 0.78% higher. In Europe traders also had a cracking day with the FTSE 100 up 0.32%, the DAX up 0.4% while the CAC 40 in Paris and MIB in Milan rose 0.66% and 0.99% respectively.

That's helped the SPI rally 17 points overnight as the local ASX builds, or tries to build, on that important 5,680 low.

On forex markets the very solid ADP payrolls data , and what it suggests for tonight's US non-farm payrolls, buoyed the US dollar which is trying to base. That means the euro looks like it might be topping and that also means it's just another weight on the Australian dollar which is suffering the sellers once again. It's at 0.7374 near the lows of the last 24 hours.

On commodity markets even a big draw in inventories couldn't help crude oil prices which slipped again. That encouraged OPEC to exercise its jawbone - but to no avail. Gold is a little weaker on the back of the US dollar strength while copper and base metals, even iron ore, seem to have had a better night of it.

On the day ahead we get HIA new home sales in Australia and the big data of global data US non-farm payrolls for May with an expectation of 185,000 jobs.

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

• S&P 500 2430 +18 (0.75%) (7.41 Sydney - change since previous day)
• Dow 21144 +135 (0.65%)
• Nasdaq 6,246 +48 (0.78%)
• SPI 200 5,770 +17 (0.29%)
• AUDUSD 0.7374 (-0.67%)
• Gold $1265 (-0.22%)
• WTI Oil $48.03 (-0.6%)

International

• US stocks made new highs overnight on the back fo some pretty solid indications and data which suggest tonight's non-farms could be solid. ADP private payrolls printed a much stronger than expected increase of 253,000 compared to the 180,000 forecasters had predicted. This data doesn't map perfectly to tonight's non-farms but it is another indication that the US labour market is the very brightest spot in the US economy. Assuming non-farms is strong again tonight then it's likely the Fed will be emboldened with the view that jobs growth will ultimately lead to wages growth which will lead to inflation. Jobless claims rose a little to 248,000 last week while the 4-week moving average also ticked higher. But worth noting continuing claims were stronger than expected.

• In other data ISM manufacturing in the US was stronger at 54.9 v 54.5 expected. But prices paid fell to 60.5 v66.4 expected and construction work done fell 1.4% versus the 0.5% rise the pundits had forecast.

• But that won't stop the Fed from raising rates in a couple of weeks it seems. Last night Fed governor Jerome Powell but the resurgent debate about inflation - or lack thereof - into context for Fed hikes. "While the recent performance of the labor market might warrant a faster pace of tightening, inflation has been below target for five years and has moved up only slowly toward 2 percent, which argues for continued patience, especially if that progress slows or stalls," he told the economic club of New York. He was a busy fellow overnight and told CNBC that a total of 3 hikes, 2 more, seems appropriate this year.

• These comments fit neatly with his colleague San Francisco Fed president John Williams who said this week maybe even three more hikes might be necessary.

• Looking at European data now, and the EU manufacturing PMI's were on the solid side of the ledger. The Markit German manufacturing PMI printed 59.5 and the EU-wide version printed 57. In the UK the print was 56.7 while France and Italy printed 55.1 and 53.8. The latter two were a little lower than forecast but still positive reads.

• That wasn't the case for the Chinese Caixin PMI data yesterday. The print of 49.6 for May wasn't only weaker than the expected outturn of 50.1 but it was also on the contraction side of the ledger. Which is one of the reasons why the Aussie dollar came under selling pressure again even though retail sales were solid and CapEx didn't entirely stink.

• So president Trump has pulled the US out of the Paris climate agreement. There will be much gnashing of teeth and wringing of hands. I won't get into that. But it is worth noting that the president again defined his role narrowly as simply president of the US. He said, I'm paraphrasing, he was elected to look after the people of Pittsburg, not Paris. He also highlighted that he is still fulfilling his campaign promises. Which is where it ultimately matters for markets. president Trump's tax and infrastructure plans are currently stalled. But when you hear speeches such as he gave in the Rose Garden this morning it clear he is still going to pursue them.

• Elon Musk has quite the president's advisory council as a result.

Australia

• US stocks rallying again, European stocks up at or near record highs, and Australian stocks? Languishing. Badly.

• The big question for local traders is whether it's time for a catch up. From a purely trading and charting perspective 5,680 in the physical ASX and SPI CFD is a cracking support zone which active traders like myself are happy to trade off.

• And last night SPI traders have added 17 points to the previous day's 14 point rally which is important in price terms. That's because a move in the physical today above the high at 5740 of two days ago would suggest to chart based traders a low is in for the moment.

• We'll see. But yesterday's cheery retail trade data (+1% versus 0.3% expected) certainly helped the sector most impacted by consumers. So it's now a question of whether the ebullience in Europe and the US drags buyers back into financials and basic materials.

• My sense is the answer is yes. The question is just how much of the gap between US and Australian stocks we can make back in June after the awful May performance.
• Yesterday's date, or how it feeds into next Wednesday's GDP could be a restraining force on any outright bullishness however given the chances are growing that Australia sees a negative print for Q1 GDP. We currently have S&P questioning the government's forecasts for growth, receipts and thus the budget position and outlook while the NAB said yesterday there is a small chance Australia actually falls into recession. Restraining forces?

Forex

• The US dollar is a little stronger this morning as traders await what might just be a blockbuster non-farm payrolls report tonight. That's if the ADP print is any guide. The US dollar index is trying to form a base here above 97 which is the corollary of the Eur's top forming process in the 1.1250/70 region.

• Tonight's data is going to be very important because as we head into the Fed's blackout period it's this data point which will help drive sentiment toward the dollar via the bond market and expectations about the path of economic growth in the US. At present, the best single indicators for the dollar have been US 10's and the Citibank economic surprise index. NFP tonight will drive both. Anyway here's the latest daily euro chart:

• Elsewhere the turbulence in Sterling continues with traders again reacting and then dismissing what seems to be a clear signal that Theresa May appears to have overestimated the hand she was playing when she called this election. In the end British Pound (USD) is around similar levels to yesterday at 1.2880.

• US Dollar (JPY) hasn't really gone anywhere at 111.35 this morning. Butu there are signs that it too is trying to build a base for a rally. It would have to break 112.12/15 to kick on though otherwise, it is just in a close to 2 big figure range with 110.20ish on the downside as support.

• Oil's fall hasn't helped the CAD and US Dollar (CAD) is up a little again at 1.3505 while on World Milk Day the Kiwi is lower and back at 0.7060 and looking like it might have put a top in place for this run.

• Over this side of the Tasman the Aussie is under pressure again this morning at 0.7374. That's right on the lows of the past 24 hours. As I tweeted around 12.30pm yesterday. This is a bear market for the Aussie dollar and lower levels beckon.

Commodities

• Just when I thought it was going to be all about inventories we've seen two really solid data points showing big drawdowns and oil is down. That's a really strong indication that we are in the grip of a bear market for oil and it is something OPEC seems to realise given statements and sources suggesting more cuts might be made overnight.

• Reuters reported that "three sources familiar with the matter" said OPEC had looked at a further cut of 300,000 barrels a day. That's something that seems to have been confirmed by OPEC secretary general Mohammed Barkindo who told CNBC, "We are continuously reviewing market fundamentals and you cannot at this moment rule out any further policy decisions". Now I'm firmly of the view that OPEC's jawboning like this simply sends a signal it is losing the battle, if no the war, with US oil.

• And it's an idea that seems to have been supported by the price action. WTI is down 0.6% to $48.03 and Brent is off 0.81% to $50.35. That's despite the 6.428 million draw in crude oil stocks reported by the EIA overnight. That draw was 2.5 times expectations. In WTI terms $47.70/80 is the key support zone.

• Gold is off a little this morning as stocks rally and the US dollar is a little firmer. The move is only marginal however with gold at $1265 an ounce.

• Copper is up a little bit and base metals are marginally higher. Even iron ore lifted a little overnight. Anyway Copper is up 0.23% to $2.58 a pound.

Have a great day's trading.