Stocks Mixed But Bonds Continue To Rally

Originally published by AxiTrader

Shorter, and hopefully a little sweeter this morning as I am time constrained after losing a big chunk this morning waiting at the roundabout for Mr 14 to be picked up for swimming train.

But like trading, stuff happens, so we crack on anyway.

Market Summary

The Nasdaq was down 0.35% to 6340, the S&P 500 slipped 0.2% to 2472 and the Dow Jones Industrial Average eked out a 0.04% rally in trade overnight. That followed what was a pretty good lead in from Europe as it became clear the Bank of England is in no hurry to raise rates.

Indeed the BoE delivered a dovish decision and message which helped the bond market rally continue and undermined sterling after it made a fresh high for this run. That helped the US dollar at the margin so euro had an inside day. But the yen is stronger and the commodity bloc remains pressure but back from its lows. The AUD/USD is at 0.7947 after a low around 0.7911.

On commodity markets oil dipped away from overhead resistance, gold has a solid bid after yesterday morning’s mini collapse, and copper remains strong.

Now for retail sales in Australia today and then non-farms in the US tonight.

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

International

• The Bank of England was more dovish than many thought possible holding rates at 0.25% while at the same time lowering its growth forecasts for 2017 and 2018. At 6-2 in favour of the status quo, the MPC vote went as expected but the BoE’s obvious concerns about the outlook for the economy as the Brexit negotiations continue, and its downgrading of the inflation outlook caught many by surprise. At least that has to be the take away from the big fall in GBP/USD and rally in EUR/GBP we saw in the aftermath of the result.

• On growth the BoE lower 2017’s outlook from 1.9% in May to 1.7% - that’s in line with the IMF forecast for the UK economy. The bank also sees inflationary pressures moderating back toward 2.6% next year after peaking at 3% in October this year. Worth noting is that BoE governor Carney really honed in on the negative impact on business investment of the Brexit uncertainty.

• As a result of the downgrade UK gilt rates fell. Again I might add because we are in the midst of a global bond market rally. Any notion that there was a central bank conspiracy to raise rates is surely dead now. How long till US dollar bears start to notice? Anyway here’s the bond market rally in chart form.

• Also on the docket last night was US ISM and jobless claims data. Jobless claims fell 5,000 to 240,000 while the 4-week moving average fell to a 2 month low of 241,750. It’s another sign of the labour market tightness Boston Fed president Rosengren talked about yesterday morning. Now for non-farms tonight. ISM’s non-manufacturing PMI slipped markedly last month with a print of 53.9 from 57.4 in June and against the markets 57 expectation. The Markit measure of services PMI however rose – and beat expectations – with a 54.7 print.

• In Europe we saw a slowdown in the EU and German services PMI with prints of 55.4 and 53.1 respectively. But French and Italian services PMI’s were a little higher.

• And in a sign the ECB is trying to signal the continuation of low inflation it said in a bulletin overnight that wages and the price of consumer goods are holding back inflation in the EU. Worth noting for the EUR/USD bulls and ECB policy hawks is the comment on wages which says they are being held back by a number of factors including “still significant slack in the labour market, weak productivity growth and the ongoing impact of labour market reforms”.

• China and India are still at it. China accused India of a troop build up overnight. And speaking of China Rex Tillerson is going to press China on North Korea while overnight the Chinese foreign minister praised the Secretary of State for his comments on the subject which were far more conciliatory than president Trump.

• Anyone else bored with the latest leak out of Washington. Who cares about the conversation the president had with either Malcolm Turnbull or the Mexican President? It’s very old news for this administration and might actually suggest General Kelly is locking things down. That’s my take anyway.

• The other rumour however - that Robert Mueller has empanelled a Grand Jury as part of his investigations in Russian interference in the election, and especially some comments that it could have something to do with Don Jr, is worth keeping an eye on. That's particularly so for gold and the yen.

• Worth noting the White House said it doesn't know any details and reasserted that President Trump is not being investigated.

Australia

• Trade data yesterday was significantly weaker than forecast. And the $856 million surplus seems to show the impact of the higher Australian dollar. It's services that seem to be feeling the heat. Of course that’s the point I made earlier in the week when I highlighted the importunate of services such as education, tourism and business services in our export league tables.

• So it’s worth sharing this chart I saw Pete Wargent share on Twitter yesterday afternoon. The Aussie might be starting to bite.

• Now to the S&P/ASX 200 and it was another poor day yesterday. But it could have been much worse with the 200 index fighting back from the lows in the 5,705/10 region to finish at 5,735. That neatly keeps prices inside the current wedge which is constraining the indexes moves.

• Overnight SPI traders are guessing at a 3 point rally when we start trade today…but I wonder.

Forex

• The US dollar fought back again after traders tried to focus on the weak ISM data and ignored everything else that was going on in the macro landscape. That the euro’s high was inside the previous day is the first sign the worm might finally be about to turn for the single currency. It is still too early to call it – we’d need to see a day of two where euro actually dipped. For the moment the most I can say is the rally is looking stretched and the fundamental underpinnings – or at least the apparent ones – are starting to deteriorate. So I’m expecting a turn in the euro, and thus the US dollar overall, soon.

• Today’s chart just had to be the pound’s reaction to the dovish BoE. GBP/USD ran up to a high around 1.3267 before the BoE before it fell heavily hitting a low of 1.3112. It’s at 1.3140 presently with further room to fall back toward the trendline as this saw tooth rally continues.

• The yen is stronger once more with USD/JPY back down under 110 for a 0.68% fall which makes the yen the best performer of the big currency pairs. In no small way this yen strength is related to news that broke overnight that Robert Mueller has empannelled a Grand Jury as he continues to look into the Russia issue - as the President called it.

• For the commodity bloc the Canadian dollar and Australian dollar remain pressured but both currencies are off their lows. The kiwi is marking time a little. All three currencies look like they have further downside – on the charts at least that is.

Commodities

• Concerns over OPEC compliance appear to be the story today that has caught the attention of oil traders – or at least the the press – overnight with some discussion about the uneven nature of compliance with the production cut deal as the UAE and Iraq make excuses for undershooting their agreed targets.

• You won’t be surprised to see me write that maybe it might have been technicals again. Last night’s high in WTI was right on trend line resistance. So this morning we have WTI down 1.31% at $48.94 and Brent is at $51.93, down 0.82%.

• My system will go short if $48.50 goes offered - here's the chart.

• Gold is doing well at $1268, back near resistance, while copper at $2.88 is holding gains.

Have a great day's trading.