Quick Recap
The RBNZ might have just done a Bank of Japan, OPEC shot itself in the foot, or maybe it was being brutally honest, Stocks in the US are lower, US 10 year Treasury auction lowest since 2012, US dollar weaker and the AUD/USD hanging tough at 77 cents after a high around 0.7750.
What You Need To Know
International
- The RBNZ cut rates by 25 basis points to 2% this morning but the Kiwi has rallied. What's even more remarkable about that is that the RBNZ said explicitly in its announcement more cuts are coming. Maybe the bank has just done a BoJ and lost the battle with the market because its statement didn't read like one that should accompany a cut. I'll have more to say in a separate piece later this morning.
- Stocks a little bit lower in the US in what is fairly quiet August, summer Olympics trade. Europe drifted a liitle lower as well but the FTSE bucked the trend and rose 0.22%.
- With about 10 minutes to go before the close the Dow Jones Industrial Average is down 0.3%, the S&P 500 is off 0.33% at 2,174 and the Nasdaq 100 back off a little from yesterday’s high and is 0.4% lower.
- This is a great story, and so true. Bloomberg has a great yarn referencing some JP Morgan research which says that the greater fool theory is alive and well and negative rates have turned bond trading into a commodity. Oksana Aronov from JPM said “As the amount of negative-yielding debt now exceeds $10 trillion globally, bonds increasingly cease to trade based on fundamentals, such as yield, and trade instead on what someone else might be willing to pay for them in the future. Bonds are effectively commodities, and investors are using the greater fool theory as an investing strategy”. You’ll recall a few weeks back QIC told the AFR that they had bought bonds with negative rates with a view to sell them when they go more negative. That’s the greater fool theory there if you extrapolate JPM’s theory.
- The problem with that being true is that it is also scary. Bonds often blow markets up when bond traders chase return not yield. Just something for AxiTraders to remember and watch out for.
- A bank of England survey released overnight seems to accord with recent survey news that says Britain has slowed. Hardly news I guess the data the BoE released came from its August regional agents' survey in last week's quarterly Inflation Report.
Australia
- The ASX was off its lows by the close yesterday posting just an 8 point fall. SPI futures traders are guessing a further small today with the September futures contract down 5 points at 5483.
- We don’t have any big economic catalysts today (save the RBNZ at 7am this morning) so we might be under a little pressure from the US drift overnight but the performance of the banks and Telstra Corporation Ltd. (AX:TLS) earnings report will be important today. Energy stocks will be under pressure with crude down, and the big miners were lower overnight. SO maybe a few more points than 5 lower by the close
- I'm short SPI now looking for a move to 5395
- Glenn Stevens delivered a great speech yesterday in his last appearance as governor. Key takeaways were, Monetary Policy is less effective than it was because people have so much debt, politicians are hopeless and self interest doesn’t just run a place when new measures are suggested it swamps the field, and we heard him defend his legacy saying the bank delivered on it’s mandate during difficult times.
- What did we learn from the Commonwealth Bank Of Australia. (AX:CBA) report yesterday? We learnt that the bank is feeling the pressure from Bill Shorten’s enduring calls for a Royal Commission – how tense and stressed was Ian NArev compared to normal, we learnt the outlook for the CBA (perhaps the economy) is more subdued than it was even just 6 months ago, we learnt that NIM fell a little across the group but went up in the retail side of the business, we learnt that loan impairment expense jumped to $692 million, and we learnt that the bank made a $9.45 billion cash profit, and we learnt the CBA is still paying massive dividends relative to earnings. All in all I think we can see the future for Australia’s big banks is less rosy than their recent past but it’s not terrible either.
Forex
- It’s hard to think of Australia with a cash rate of 1.5% as a high yielder but that’s a description I read somewhere this morning to explain why it rallied hard and fast overnight. At 0.7706 this morning it’s 50 points off the high overnight which migh be a signal the move is getting a bit tired. But the Aussie current gain of 0.48% is roughly in line with the Euro’s 0.51% gain right now as it sits at 1.1178.
- So it’s about the US dollar and perceptions of the Fed as much as anything else. Certainly the BoE buying bonds and driving the 10 year to 0.5% (while 4 year rates were negative again) helped drive US rates lower with the US Treasury issuing 10 year’s at 1.50% - the lowest since 2012 I read.
- That means there is little fear of the Fed. And if that is the cas ethe US dollar, as I suggested yesterday, is going lower. Last night it found support at the trendline. THIS IS A VERY TECHNICAL/TRADERS MARKET – almost everywhere.
- Elsewhere even though oil was lower the NOK rose strongly as it’s inflation rate surged. USDJPY is at 101.22 down 0.66%, GBP/USD is at 1.3008 and USDCAD is down 0.42% even though oil fell. Proof this is a US dollar move.
Commodities
- Crude oil was hit by a double whammy of a 1 million barrel build, when a 1 million barrel draw was expected, and a new OPEC report which said the weakness in seasonal demand could see weak prices continue. The Saudi’s also told OPEC that their output hit a new high in July of $10.67 million barrels a day.
- Technically the high two days back was at an important short term level and the price action overnight was very ugly. So traders might be getting titchy about a retest toward last week’s lows.
- Gold is of its high but back up at $1346 as it continues to find support from the enduring uncertainty in markets. It’s also being supported technically by its current uptrend support.
- Copper is up 1% at $2.17 a pound.
- It looks like iron ore futures were down again overnight.
Today's key data and events (all times AEDT)
- Australia - Consumer Inflation Expectation (Aug) (11am)
- New Zealand - RBNZ Interest Rate Decision, Monetary Policy Statement, RBNZ Press Conference (7am); Food Price Index (MoM) (Jul) (8.45am)
- China - M2 Money Supply (YoY) (Jul), New Loans (Jul) (12pm)
- Japan - Nil
- Germany - 10-y Bond Auction (n/a)
- EU - Nil
- UK - RICS Housing Price Balance (Jul) (9.01am); CB Leading Economic Index (Jul) (11.30pm)
- Canada - New Housing Price Index (YoY) (Jun), New Housing Price Index (MoM) (Jun) (10.30pm)
- US - Continuing Jobless Claims (Jul 29), Initial Jobless Claims (Aug 5), Import Price Index (YoY) (Jul), Export Price Index (MoM) (Jul), Export Price Index (YoY) (Jul), Import Price Index (MoM) (Jul) (10.30pm); EIA Natural Gas Storage change (Aug 5) (12.30am); 30-Year Bond Auction (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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