Quick Recap
US dollar weaker even though Bill Dudley said again rates are likely to rise, oil still rising, gold higher, jobless claims phenomenal, UK retail sales exceptional, and stocks? Nonplussed
Interesting night.
What You Need To Know
International
- Stocks remain becalmed again as we close in on the 6th full week of trade in the S&P under 1% range per day. At 5.47am this morning the Dow Jones Industrial Average is essentially flat at 18577, the Nasdaq 100 is up 0.16% and the S&P 500 is at 2185. Nowhere fast. Stocks in Europe did a little better with the CAC up 0.44% and the DAX up 0.62%. IN the UK the FTSE 100 was just 0.14% higher.
- 6 weeks! - Here's the chart.
- Okay, the Fed. Again. Folks are still talking about the minutes being more dovish than the market expected and showing that the Fed is a house divided. Because the minutes represent the collective thoughts and discussions of the 17 members of the FOMC they are outweighing the individual comments from Fed presidents who are suggesting that rates will need to rise again this year.
- Even comments from really senior Fed officials like the NY Fed president Bill Dudley. For the second time this week Dudley was out and about talking about thye economy and implying the pre-conditions for a rate hike are in place. Dudley said the US economy is getting close to full employment, the jobs market is “very sturdy”, and the last couple of months employment data “helped allay concerns that arose earlier this year that job growth was beginning to stall”. He also said the second half of the year should see a pick up in growth. San Fran Fed president Williams was also out and saying the fed has to raise rates.
- I think the market has the Fed read wrong on this.
- Interestingly – as my colleagues at Business Insider reported this morning – the jobs market is so strong it’s done something that hasn’t happened since Nixon was POTUS. Jobless claims came in at 262,000, below economists’ expectations of a slight dip to 265,000. That means claims have now been below 300,000 for 76 straight weeks — the longest streak since 1970.
- Across the Atlantic in the UK we got another sign that – as I strongly believe – the UK economy won’t collapse the way the pundits expect it to. As Reuters said this morning “Sentiment surveys have shown levels of concern, but actual retail sales volumes surged 1.4 percent in July compared with June, the Office for National Statistics said, topping all forecasts in a Reuters poll that pointed to a much smaller rise of 0.2 percent”. That’s a huge beat and along with the employment data in the UK suggests there may need to be some sort of recalibration by the punditry of exactly what is going on in the economy. Sterling surged as a result.
- ECB minutes (sort of) were out last night and showed a bank a little concerned about the impact of Brexit but didn’t think stimulus was necessary immediately. But, Jennifer McKeown, an economist with Capital Economics in London, told Reuters the minutes appeared to confirm that the central bank was preparing to loosen policy again. She highlighted remarks attributed to the ECB's chief economist, Peter Praet, that underlying inflation in the euro area "continued to lack a convincing upward trend and remained an ongoing source of concern." Data last night showed headline inflation at 0.2% yoy even though prices fell 0.6% in July. Core is 0.9% yoy but -0.7% mom. Weird data.
- And just keep a little eye on Spain. PM Rajoy faces a no-confidence motion in parliament in order to show the strength of the government he is forming. You’d hope he can win this one.
Australia
- The S&P/ASX 200 ended the day down 27 points yesterday even though the US markets had given it a good lead with futures ending up during our day. But Asia had a tough day, especially Japan where the Nikkei fell 1.55% as the Yen traded back under 100. The banks were under pressure again, as were BHP Billiton Ltd (AX:BHP) and Rio Tinto Ltd (AX:RIO) but Fortescue Metals Group Ltd (AX:FMG) had a solid almost 4% rally and Woolworths Ltd (AX:WOW) was up around 0.76%. Wesfarmers Ltd (AX:WES) fell 0.6%. AMP Ltd (AX:AMP) and Qbe Insurance Group Ltd (AX:QBE) were lower as well.
- After the fall yesterday the SPI futures are suggesting a more positive start at the open this morning with prices currently up 15 points. Quite a few stocks reporting again today but none I really take an interest in apart maybe from Santos Ltd (AX:STO), Insurance Australia Group Ltd (AX:IAG) and Medibank Private Ltd (AX:MPL). IAG (LON:ICAG) might be interesting given the turmoil the other insurers have found themselves in after their results this week.
- Here’s the question I’m asking myself about the bank and insurer earnings. If the banks are seeing increased bad debts, and AMP said its seeing more claims on wealth protection insurance does that mean the underlying economy is weaker than we think? I don’t know the answer yet.
- Jobs data for July yesterday was interesting yesterday – not believable but interesting. I very much doubt the economy actually created 70,000 odd part time jobs and lost 46,000 odd full time jobs. But the fact the ABS singled out the amount of part time jobs created in the past 6 months, 101,200, is interesting in what it says about the economy.
- That, and underemployment levels, show that there is still plenty of slack in the labour market which suggests the RBA can run this economy a little harder. Which implies that we will see further rate cuts toward 1%. Even though the unemployment rate is 5.7%.
Forex
- Isn’t the MoF a paper tiger. Even though we are getting warnings from MoF vice minister Asakawa they can intervene unilaterally but no one really believes that the Fed, or any other central bank will join the party if the MoF asks the BoJ to start selling Yen. So as silly as it feels buying Yen when USDJPY is under 100 if there is no opposition the trend has some way to go before it exhausts itself. But USD/JPY would need to take out the post Brexit low to really kick on. Maybe that is when the MoF might actually get busy.
- The AUD/USD keeps finding support. But there is plenty of resistance up in the 7750 region. Why it’s finding support is easy enough to understand. Martin Whetton from the ANZ shared his Asian trip notes yesterday which highlighted that investors are still buying because of a number of reasons including a lack of alternatives and the big yield pickup. I wrote it up at Business Insider yesterday.
- Elsewhere the US dollar was weak, as traders take the Fed minutes dovishly, which helped Euro rally to 1.1360 this morning. GBP/USD was solid on the back of retail sales and the US dollar so it’s sitting at 1.3164. Lets see if the pundits recalibrate their expectations??? 1.34/1.35?
Commodities
- Oil, Oil, Oil – Oi, Oi, Oi. Wow, boom, the bears are getting crushed and traders are loving this market. Two trendlines broken over the past week and now the fibo level taken out in the high $46 a barrel region. As a result, and of course expectations a deal may be agreed on production, Crude Oil ripped another 3% higher to $48.22 this morning. My charts suggest a full trip to $50/$51 is on the cards. Brent Oil is already their at $50.80 this morning it also has a continued topside bias.
- But it has to be getting toppish soon surely – soon, not yet though most likely. Here's WTI.
- Gold is up again at $1352 as the US dollar weakens.
- Copper has rallied also to 0.7% to 2.1680
- Iron ore was up 1.3% overnight.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Visitor Arrivals (YoY) (Jul) (8.45am)
- China - Nil
- Japan - All Industry Activity Index (MoM) (Jun) (2.30pm)
- Germany - Producer Price Index (MoM) (Jul), Producer Price Index (YoY) (Jul) (4pm)
- EU - Nil
- UK - Public Sector Net Borrowing (Jul) (6.30pm)
- Canada - Retail Sales (MoM) (Jun), Retail Sales ex Autos (MoM) (Jun), Consumer Price Index (MoM) (Jul), Bank of Canada Consumer Price Index Core (YoY) (Jul), Bank of Canada Consumer Price Index Core (MoM) (Jul), Consumer Price Index - Core (MoM) (Jul), Consumer Price Index (YoY) (Jul) (10.30pm)
- US - Baker Hughes US Oil Rig Count (3am)
Have a great day's trading
Greg McKenna
Chief Market Strategist AxiTrader
www.gregmckenna.com.au
Please note: I usually look at 2 or 3 charts each day. These will not always be the same charts and the above is meant to help guide traders thought processes not offer advice.
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