Originally published by AxiTrader
Market Summary (Tuesday, April 3 – 7.47am)
Stocks drifted higher into the long Easter break, but that has proved short lived as traders got back to work Monday in the US hitting offers and the sell button.
What drove this negativity appears to have been residual bearishness which was catalysed by a a combination of China’s announcement the new US tariffs would come into effect on Monday, President Trump’s continued attack on Amazon (NASDAQ:AMZN) (a new tweet overnight), and continued worries about the outlook for the tech sector.
The washup is the big three indexes in the US are all deeply in the red and, crucially, the S&P 500 has closed below its 200 day moving average for the first time since June 2016.
Just quickly on the China tariffs. They didn’t seem too bad but combined with editorials in the state press they do suggest China is ready to escalate if negotiations fails. And of course the President’s tweets about Amazon just add fuel to the fire started by a recognition maybe the FANGS, and thus the overall market, had got ahead of themselves.
So at the close, the S&P 500 is at 2,580 down 60 points, 2.22%, after a 14 point rally in the final 20 minutes of trade. The Dow has lost 1.9%, 458 points at 23,644 while the Nasdaq lost 2.89% to close at 6,390. All sectors of the S&P 500 were lower – even utilities lost 0.75%.
And of course, with this kind of price action, you’d expect US rates to react as well. And while the 2-year treasury is at 2.25% and the 10 at 2.73% they are off their lows and only a point or two lower on the day.
It all sets up a tough day for the local stock market with the price action offshore increasingly suggesting the S&P/ASX 200 is headed toward the bottom of last years multi-month range near 5600 is an increasing probability.
On forex markets it has been a mixed night with the US dollar stronger against the euro (1.2303) but weaker against the yen (USDCAD 105.90) and the pound (1.4045). Against the commodity bloc the Greenback is a little stronger. But not as much as you’d normally associate with the type of market funk we are seeing in stocks right now. The Aussie is down just a quarter percent at 0.7660, the kiwi is down a little less and still holding 72 cents at 0.7218, while the Canadian dollar has lost just 0.18% with USD/CAD at 1.2915. That’s despite the utter collapse of oil overnight.
It seems the US dollar still can’t take a trick and that although a crowded trade the US dollar loathing remains a strong theme in forex markets and for forex traders.
On commodity markets, gold has bounced $17 to $1341 after it drifted into the Easter break. Copper is actually up which shows the US-centric nature of the current malaise engulfing markets, while oil is lower on news of increased Russian supply, talk the Saudis are about to drop prices to Asian clients, and perhaps a little of the Bahraini oil find announcement. WTI is down 2.8% to $63.12 while Brent dropped 2.29% to $67.75.
On the day today, we have the RBA meeting as the highlight here in Australia. It would be a shock to everyone if the governor and his board did anything other than leave rates on hold and reflect optimism about the global and Australian economic outlook. We also get the AiGroup’s manufacturing PMI and ANZ job ads.
Tonight it’s retail sales in Germany along with a raft of European manufacturing PMI’s before a couple of Fed speeches from Neel Kashkari and Lael Brainard. The kiwi traders will also be watching the global dairy auction.
Here's What I Picked Up (with a little more detail and a few charts)
International
- President Trump hates Amazon. Or at least we can say he has the company in his sights as he rages about the destruction to B&M stores, jobs, the impact he sees on the US postal service, and no doubt the link to Washington Post owner and Amazon founder Jeff Bezos. After raging about DACA and Mexico on Easter Sunday the President focussed back on Amazon overnight. It sent the shares tumbling 6% and continued the downward pressure on the company's share price.
- As Greg Valliere from Horizon Investments wrote overnight – this is the headline President. He’s a man whose behaviour has been reinforced by his results over the first year or so in office. And love him or hate him the reality is that on his core issues his instincts and approach have been effective. Behaviourally that reinforces his approach. So we are unlikely to see any change soon and with the changes in staff it’s more likely he'll continue down this combative path. So we need to watch the headlines AND PARTICULARLY watch the way the press frames them because that will inform market sentiment.
- And speaking of which, sentiment is turning against Facebook (NASDAQ:FB) and it leadership team. Readers know my view on the FOUR, although I will say Tim Cook is doing a cracking job of building a moat around Apple (NASDAQ:AAPL) amid these privacy concerns. But back to the Zuck and it’s worth noting that the FT ran a story saying that the New York’s comptroller Scott Stringer, the guy that oversees NY’s pension investments, says Zuckerberg must go. You can read the story here. But Stringer does have a point when he says, “it is the eighth largest company in the world. They have two billion users. They are in uncharted waters and they have not comported themselves in a way that makes people feel good about Facebook and secure about their own data”. Comport is a perfectly chosen word in this instance.
Source: Twitter (Holger Zschaepitz)
- And why do I keep talking about Amazon, Facebook and the tech sector when we don’t trade these things at AxiTrader? Because the tech leadership was a big part of the stock market. As I wrote last week the tech sector were the leaders in the rally and as they unwind, as sentiment shifts, so then can they drag the entire market lower with them. And that is important for the stuff we do trade at AxiTrader.
- And on stocks, the S&P broke one and closed in on another of the two levels which supported it at February’s low. You’ll note back on that Friday in Feb the S&P 500 not only bounced off the 200 day moving average with the low around 2,530 but it also bounced off the linear trend line from the 2009 low around 666. While it broke the 200 day moving average – something that will impact sentiment if prices hold below it for a few days or on the week’s close – the S&P 500 actually closed ON the linear regression trend line from the 2009 low. So for me, as I wrote last week, it is the 2,530 Feb low which is the key to the outlook not necessarily just the 200 day moving average. A break of 2,530 in the S&P 500 would be a very bearish signal.
- On the data front quickly. Over the weekend the Chinese official PMI’s weren’t too bad but the Caixin manufacturing PMI yesterday was a little weaker than expected. In Japan yesterday the Tankan dipped a little on the back – it seems – of the stronger yen and overnight in the US while the Markit manufacturing PMI was a little stronger than previous the ISM was a little weaker. But to put that in context the Atlanta Fed has again updated its outlook for US growth in Q1 – it now says the partial data suggests an outcome of 2.8% annualised. That’s up 1% in the past week or so.
Australia
- How ugly will it get today on the ASX? That’s an interesting question but one the technicals suggest points toward a test of 5,650 as an nice and easy Fibonacci projection of the break of the recent low last week. Throw in the weakness on US markets overnight and that probability rises in my mind toward 75:25. Timing, don’t ask, I would have a clue. The idea that I can put a level and a time on a move has always struck me as ludicrous. Perhaps some can but I never do. Sometimes things happen faster than you think, sometimes slower. It’s all part of trading and staying with the trend.
- And that’s the point now, isn’t it? The secular trend in US stocks is still higher, though for the moment it is clear they are having a reversal and will – I believe – eventually touch levels around 20% from the record high. For the Australian market the trend has never been as powerful. But for the uptrend from the 2015 low to remain intact the ASX 200 has to hold above 5,700. A break would question it, a fall below 5,600 would confirm it.
- The weekly SPI chart (continuation) suggests prices are headed toward 5,554 as a simple garden variety pullback of the last few years price action. We’ll see how things look then.
- The Australian dollar is holding in much better than you may expect given the weakness in risk assets like stocks and bid in gold and the yen. The reason for that is the US-centric nature of this current sell off – tariffs and trade with China and US tech. But I’m not convinced that is enough to make the Aussie dollar immune if this weakness continues and stocks fall as far as they might.
- I say that because the headwinds for the Aussie dollar remain strong. The negative bond interest rate spreads across the curve which means you have to pay to be long Aussie, the recent performance of Australia’s bulk commodity complex, and of course the risk aversion that is growing. The US dollar can’t take a trick at the moment which just highlights how the macro-economic data will be a key driver of forex, the US dollar, and the Aussie in the next week. For the moment the levels I’m watching are support at 76 cents and resistance at 0.7700/20.
Forex
- Euro 1.23ish, yen at USD/JPY a little below the 106ish region. Forex traders are still yet to by into the stock market selloff as a paradigm shift in markets worthy of a rebalance of rates and levels. That much is evidenced by the levitation of the Aussie and kiwi let alone the fact the US dollar can’t take a trick no matter that indicators such as US-EU spreads and forward indicators of EU growth are moving lower.
- I know I sound like a broken record but the CESIEUR is languishing at -58.1 while the CESI USD is still hanging tough at 46.1 around the levels it’s sat at all year while European data has missed expectations to the downside. That in turn has impacted on expectations of EU rates going forward. But not yet the euro.
- And for me this is the key. The euro is in a 1.2150/1.2550 range. I’d rather trade it than fight it. The signal will be when it breaks. And then we’ll know where the US dollar is headed and given that where so many pairs are likely to follow. That’s because the result of this euro and US dollar range has been range trading in a huge number of other pairs I watch. Euro is the key folks.
Commodities
- First day back and I’m out of time so I’ll make this quick. Whatever excuse you have read this morning for why oil is down – Russian production, Saudi prices to Asia, Bahraini discovery – they all have found resonance because last week both Brent and WTI FAILED TO TAKE OUT THE RANGE TOPS.That’s meant that traders wary of this inability to break higher and in the knowledge the market is still very long (CFTC net big spec increased last week to 715,770 contracts). That makes prices vulnerable to bad news, or should I say negative headlines.
- And that’s what we’ve seen in the news while the fall in stocks has added weight to the downside. That’s despite the fact that forex traders have largely ignored the risk off environment. That circle will be squared soon.
- In the meantime you can see on the chart below last nights low was also a previous high. If that gives way we could see much lower prices. $66.70 as the mid Bolly band is an important level to watch.
Have a great day's trading.