Originally published by AxiTrader
Market Summary
Stocks are up again this morning as US traders again took the S&P 500 above 2400. It’s dipped a little from there at the close but the overall rally of 0.2% to 2398 leave it just below the record highs having erased last week’s falls.
The Dow Jones Industrial Average was up 0.2% to 20,939 and the Nasdaq 100 was up 0.08% to 6,137. Stocks in continental Europe recovered from their previous day's weakness. While stocks in the UK were down a little after the terrible and senseless attack at the Ariana Grande concert the night before.
Against this backdrop, and after a poor day’s trade yesterday SPI traders have marked prices up 18 points this morning as they bet that we’ll see a better day on the ASX.
And it was a better day for the US dollar which found its feet after the recent period of relentless selling. Euro is lower in what looks like a turn in trend, the Aussie has been chased back from above 75 cents, the pound was rebuffed again near 1.3050 and the yen is under pressure once more as USD/JPY rises.
That and higher bond rates hurt gold which is back at $1251 but oil and base metals traders remain in a good mood as they await the OPEC meeting and digest good economic data out of Europe.
Today we get Westpac’s leading indicator of economic growth nd construction work done for Q1.
Tomorrow morning it’s the FOMC minutes which could be market moving.
Here's What I Picked Up (with a little more detail and a few charts)
- S&P 500 +4 (0.18%) 2398 (7.17 Sydney - change since previous day)
- Dow +43 (0.21%) 20937
- Nasdaq +5 (0.08%) 6,138
- SPI 200 +13 (0.20%) 5,782
- AUDUSD 0.7476 (0.0%)
- Gold $1251 (-0.74%)
- WTI Oil $51.49 (+0.7%)
International
- The odds of a June hike by the FOMC remain high at 83% according to the CME’s FedWatch tool. But it looks like we might have another dissent on the move from Minneapolis Fed president Neel Kashkari. Overnight he said that “Right now inflation is going in the wrong direction, and so that is concerning to me”. He did note that the jobs market was nearing full employment but said its still not clear how far from that point the economy is.
- And speaking of the economy the data last night knocked the Citibank Economic surprise index for the US down to 38.9. The Richmond Fed manufacturing index collapsed to 1 from 20 last month and well below 15 which the market expected. New home sales collapsed 11.4% far worse than the 1.5% fall the market anticipated. The Markit services PMI was stronger than expected at 54 but manufacturing PMI undershot at 52.5.
- In Europe the data told a different story. German Ifo current assessment, business climate and expectations were all higher than expected at 123.2, 114.6, and 106.5 respectively. Markeits preliminary PMI for the EU was higher than expected in manufacturing (57), a little weaker in Services (56.2) but the balances was slight rise in the composite to 56.8. Germany had a similar result but France saw services outperform and manufacturing undershoot. The net effect is that the Citibank Eco surprise index for the EU bounced back to 60.4.
- And that is important because it suggests the ECB can change its language and message about the EU wide recovery when it next meets in June. I don’t expect them to change rates anytime soon – something the most talkative member of the ECB board member Benoit Couere said overnight – but they can embrace the recovery and start to flag an end or taper to their bond buying program. That could be important for the euro.
- More revelations – or accusations actually – surfaced yesterday via the Washington Post that president Trump sought to influence comment by intelligence officials. The story adds to maelstrom surrounding the president’s administration but markets aren’t bothered overly right now. To that end former CIA Director Brennan told a Senate hearing overnight that he was the first person to call Russia out on its interference in the election, that he called his counterpart at the FSB to tell him to back off, and that he was aware of activities that needed investigation by the Bureau. He declined to brief the committee on the details in public.
- And speaking of the president, yesterday saw the release of his budget which seeks to strip back the welfare state, sell 50% of the SPR over 10 years, and asks only for $1.6 billion to be allocated to build the border wall with Mexico. It’s a tough budget which looks to slash $3.6 trillion of spending over 10 years.
- And again on the president’s impact on the global conversation on exchange rates and security. Following on from Angela Merkel’s comments the previous night the team over at ForexLive report this morning that German finance minister Schaeuble said pragmatic solutions need to be found to strengthen the Euro and that Europe must make a bigger security contribution. We know his target is president Trump and his pending visit to NATO and G7 but wow, o wow, what a different conversation global leaders are having.
Australia
- What a disappointing day yesterday was. Our financial sector came under pressure as the implications of what S&P is actually saying seemed to hit home and traders wondered about valuations in this most important sector of the local market. On S&P I’m personally furious that it said the reason for the downgrades of 23 smaller Australian ADI’s (note I am a director of one of them) was because of the instability feed by the majors but that because they’d be bailed out they get to keep their sovereign uplift and thus rating. But in igniting the TBTF debate once more, and in downgrading the industry at a time when nothing has yet gone wrong, S&P has shon a light on the fears many global investors have about Australian banking and housing. As real or imagined as that threat may be – don’t foget S&P actually said they think things will work out okay – it’s been a catalyst for a rethink. Who knows how it will play out in the end. But while the financials are under pressure – more than 25% of the S&P/ASX 200 – it’s hard for the overall market to rally.
- But SPI traders have had a go last night lifting prices 18 points after yesterday’s 11 point fall to 5760. We’ll see how things play out today. And while the lead from the US is again positive the overall price action on the local market is not. As you can see in the chart below the ASX needs to break back above the previous support zone (wedge) for the outlook to materially brighten. Yesterday’s reversal from the highs and then fall was a sign it is struggling at the moment at an Index level.
- Worth noting is that Reuters reported overnight that BHP Billiton Ltd (AX:BHP) has hired Barclays (LON:BARC) to help it sell its US shale gas assets.
Forex
- Even with the help of comments from Chancellor Merkel, finance minister Schaeuble, and positive EU data the Euro has backed off its highs. That means it’s sitting at 1.1180 this morning looking like it needs a consolidation in time and or price if it is to head higher anytime soon. It’s not exactly a bearish engulfing candle in the EUR/USD, it hasn’t fallen far enough, but it certainly is a candle that suggests we might have an interim top as I alluded to yesterday. It may now fall back to test the break out from the uptrend channel recently.
- As I often write the steeper the incline or decline of a move in prices the more likely we see a reversal to test the stickability of the move. Here’s the euro chart.
- Elsewhere the US dollar’s rally has knocked the yen lower with USD/JPY up 0.44% to 111.77, Sterling has lost 0.3% to 1.2959 after another test toward resistance at 1.3050ish.
- On the commodity bloc the Aussie found the air above 75 cents a bit too thin last night. The high of 0.7516 has given way to weakness and the battler is back at 0.7475 as the US dollar’s strength returned.
Commodities
- OPEC’s extension of production cuts to 9 months is baked into the cake it seems. That’s despite Oman saying overnight a discussion needs to be had before the decision is made. But this chart from the EIA – via the WSJ – really shines a light on exactly why OPEC needs to increase net revenues. Readers will recall in the past that I’ve discussed the fiscal position many oil producing nations find themselves in. That’s because receipts from oil production have fallen so far from recent peaks. The cartel is back below levels seen more than a decade ago.
- That said though the emergence of US shale oil remains a game changer for the supply/demand balance in global markets. That’s not necessarily the case with the president’s proposed sale of half the SPR. That’s because – assuming congress agrees - it is likely to be dripped out over 10 years in a manner that seeks to have the least impact on prices.
- And speaking of prices the proximity of the OPEC meeting, and I think some faint hope of deeper cuts, lifted oil again overnight after a quick dip on the back of the SPR sale news. WTI is this morning up 0.68% to $51.48 with Brent up 0.54% to $54.16. The API data on inventories showed a draw of 1.5 million barrels last week but this has not materially moved prices.
- Stocks up hasn’t been helpful for Gold which is down this morning at $1251 down $8 or 0.64%. It hasn’t helped gold that US rates a re a little higher this morning.
- Copper is holding around $2.59/60 this morning amid what’s been a fairly positive night for metals once more. Iron ore is down a little.
Have a great day's trading.