Originally published by AxiTrader
Market Summary
No need to over egg it this morning. It’s a day of consolidation and small moves across the markets I follow.
I’m acutely interested in the French presidential debate because I wonder if markets are a little too sanguine about the prospects for an easy Emmanuel Macron victory in the second round of voting. But it seems most folks are waiting on the meeting between presidents Xi and Trump. And of course non-farm payrolls.
So we have bonds in the US off the lows we saw over the past 24 hours but still signalling Trump trade fatigue. Likewise stocks in the US are again off their overnight lows but they too show signs of Trump fatigue with no real move day on day, just a mild rise.
Europe had a better day, however with all the big indexes up. And that, along with the reality that it was the basic materials sector driving the FTSE 100 to 0.54% has emboldened SPI 200 traders to take prices 22 points higher this morning – suggesting a solid start to the day ahead.
On Forex markets the Aussie found support in the mid 0.7540’s. But along with the New Zealand dollar it’s the worst performing of the G10 forex pairs this morning with a loss of a little more than half a percent after a dovish statement from the RBA governor yesterday, and last night. Euro and Yen haven’t moved much but Sterling is down about a third of a per cent.
Gold has remained firm, oil has bounced above $51 in WTI terms for the first time in almost a month. Copper rallied.
What You Need To Know (with a little more detail and a few charts)
- S&P 500 +1 (0.06%) 2360 (8.36 am Sydney)
- Dow Jones Industrial Average +39 (0.19%) 20689
- Nasdaq 100 +4 (0.07%) 5,898
- SPI 200 +27 (0.46%) 5,871
- AUD/USD 0.7667 -0.48%
- Gold $1256 +0.32%
- WTI Oil$51.17 +1.72%
International
- The US trade deficit was smaller than expected in February with a print of $45.3 billion. That was on the back of a lift in exports and fall in imports. Also out was factory orders which were up 1% and the NY Empire manufacturing index printed 56.5 v 51.3 last.
- Richmond Fed president Jeffrey Lacker has resigned with immediate effect. That comes after he admitted that he’d inadvertently shared protected information with an advisory firm which then shared it with clients before the wider market received the news. Markets seem to have taken this in in their stride.
- Here’s an interesting one. Citibank says a majority of French citizens actually want a vot on France’s inclusion in the EU. I wonder if that means there is more support for Le Pen than we think? On Marine Le Pen she is doing her best to put a bright face on the potential exit saying that the Banks won’t leave France if France leaves the EU. Maybe because the EU would self-distract if it – as a pillar of the group - did anyway???
- Also in Europ a group of advisor in German – of course – has warned that the ECB’s policy is not worth the risks”.
- Just quickly on Xi and trump’s meeting. It’s my sense that Xi – and the CCP – are playing and will continue to play a very long came. In a sense they can wait the US president out. He has either 4 or 8 years in which to try to remake the US economy and society – assuming the legislative branch plays along – in his vision. Worse still for him given his ratings at present his own party could benefit from opposing him as we head toward the 2018 congressional elections. Especially if that Congressman is on a thin margin.
- So for all the potential bluster my sense is China will be firm but treat Trump like a wave crashing on the rocks. It’s a long game they are playing and even four years of crashing surf is unlikely to sway them from their economic or political path.
Australia
- The RBA keep rates on hold yesterday but it gave a clear signal that it has concerns. And not about financial stability. For brevity rather than write a lot of words here’s my summary of Phil Lowe's statement I tweeted yesterday.
- In many ways though, Lowe went further in his speech last night where he warned on the level of debt, called out the ability to negative gear as a big part of the interest only culture we have here in Australia as an outlier globally, and said the banks are lending to people with the skinniest margin possible of repayment ability.
- It’s a great speech and one worth reading. But for me the key takeaway for the future of the Australian economy and the potential for an enduring period of potential weakness in consumer demand was one sentence he made. “For many people, the high debt levels and low wage growth are a sobering combination,” Lowe said.
- As a behavioural economics guy I think that’s important. Australian consumers have been anchoring on their wealth for the past few years – happy to spend and run down their savings rate to a post-GFC low in the December quarter of 2016.
- But, if Australian consumers switch focus and anchor on their debt, something I also highlighted in a tweet yesterday when discussing the potential impact of APRA’s clamp down on interest only and investment lending. In fact what that is also is a signal that house prices are going to at best slow their rise and possible turn lower. And that makes what Lowe said doubly important.
- Folks if Australian consumers start focussing on repaying their debt at an even more accelerated rate it will mean less spending in the economy.
- Anyway that’s all in the future. On the day SPI traders have marked prices 22 points higher as it bets the miners might have a better day of it. I wonder what the impact might be on the banks though. Yes the increase in margin associated with out of cycle rates has just kicked effective profitability across the sector higher. But APRA is signalling a crack down on demand for bank product. I wonder.
Forex
- I won’t over egg the forex piece today. The Aussie (for obvious reasons) and Kiwi are the big movers of the G10 overnight and the pound is headed back to retest the recent lows and break of the downtrend line from August last year.
- Euro has stabilised over the past couple of day’s and the yen is under 111 but not going on with it right now.
- On the weekly charts USD/JPY looks like it is still heading lower. But just like bond traders backed off from taking the US 10 year rate down and through 2.30% yesterday so too have USD/JPY traders slowed their rate of US dollar selling in recent days.
- In no small part that is because markets are just awaiting this meeting between Xi and Trump. Not to mention non-farms.
- Equally though that is just a neat way of saying we remain in a state of market flux. The Trump trade has stalled, but not really reversed (except in bonds) and president trump and his administration are still getting the benefit of the doubt. The next leg of substantial Yen strength or weakness will flow from a change in this uncomfortable equilibrium.
Commodities
- Traders are a little more ebullient about the prospects for Crude oil this morning. Both WTI and Brent have put in solid rises of 1.59% ($51.04) and 1.9% ($54.13) respectively. No real fresh news – but there is apparently plenty of focus on inventory data once more after API reported a draw of around 1.8 million barrels of crude.
- Personally I also think it’s the price action. Traders saw the solid base at $47 hold under some aggressive attacks in the past month and the market is now search for the supply zone. Chartwise the dailies suggest higher prices yet.
- Gold continues to benefit from uncertainty and is at $1256 this morning. It still needs to break and hold above $12654 for me to get bullish.
- BHP Billiton Ltd (AX:BHP) said Escondida is running again but not at full capacity. That seemed to help copper prices which are up 0.4% to 2.608 this morning. But it’s worth noting Indonesia has apparently granted Freeport-McMoran the requisite license for their mine.
- And keep an eye on silver. It’s at $18.26 this morning. But as I noted in a piece yesterday on a long term chart basis it looks like it is trying to build for a sharp move higher.
Have a great day's trading.