Subtle Moves Across Global Markets Greet Traders In Asia Today

Originally published by AxiTrader

Market Summary

Stocks and bonds slipped a little, oil fell sharply, gold rallied again, and the US dollar came under a little pressure in what was a fairly benign night by recent standards.

US shares ended the day mixed with the Dow Jones Industrial Average and S&P 500 up 0.13% and 0.12% respectively while the Nasdaq 100 dipped 0.05%. Stocks in Europe were lower with the DAX off 0.82%. But this morning SPI traders are fairly nonplussed with the overnight action and have marked prices up just 2 points after yesterday’s 0.37% fall on the S&P/ASX 200.

On forex markets the Australian dollar's rally has been validated by the surge in iron ore and metals in the past 24 hours. It’s at 0.7935 this morning. Elsewhere the US dollar has lost a little ground with the euro the best performer and USD/JPY at the bottom of the 2017 range.

On oil markets, crude reversed much of Friday’s big rally with WTI down 2.12%. But it is roll day tonight in the US. Gold is higher again on a little North Korean tension and a weaker US dollar, while copper surged with other metals to $2.98 a pound

Here's What I Picked Up (with a little more detail and a few charts)

International

• US stocks fought back from weakness overnight but that doesn’t change what could be an emerging downside bias. That’s not to say a crash is coming. It’s not to say stocks will fall 10 or 20%. But there is a growing technical case which suggests the downside case is building. Time will tell naturally but I put up a post on this outlook yesterday based on the weekly charts.

• The conjecture continues about what Mario Draghi will say at Jackson Hole this weekend. Reuters has consistently cited “sources” who say he won’t announce anything new on policy at his speech. But various other news agencies are continuing to suggest he will. Personally I doubt it because he won’t be able to control the narrative from Jackson Hole in the way he could with an ECB announcement and press conference. That and his consistent suggestions that while growth is on the improve inflation is not. Not to mention the ECB governing council’s concerns about the euro as reflected in the minutes last week.

• But the Bundesbank didn’t help much overnight saying in its monthly report that growth in Germany could end up being faster than expected. "The exceptionally positive corporate and consumer sentiment indicators, and the solid stock of industrial orders suggest that the German economy is likely to continue to gain momentum in the current quarter…the German economy could grow even faster this year than expected in the June projection," the bank said.

• Turning to Japan’s economic outlook and there was more evidence that things are on the up yesterday with the Reuters Tankan survey hitting a 10 year high of +27. Taken together with the strong consumption growth shown in Q2 GDP its easy to see why the yen is strengthening at the moment – even abstracting the weaker US dollar and safe haven bid.

• Ray Dalio, who runs the globes biggest hedge fund, neatly summarised the fractious nature of global politics and the division within the United States in a LinkedIn (NYSE:LNKD) post overnight. He observed that ““democracies are threatened when the principles that divide people are more strongly held than those that bind them and when divided people are more inclined to fight than work to resolve their differences,” adding “Conflicts have now intensified to the point that fighting to the death is probably more likely than reconciliation”. People, including the President, need to heed Dalio’s words. Game of Thrones might be a fun show to watch, but do we really want to turn this world into Westeros for our children?

• The other thing Dalio noted was that politics is more important for markets than it has been for a while. He’s right about that.

• The Chicago Fed’s National Activity Index fell from 0.16 to -0.01 (+0.01 expected), indicating sub-trend growth.

Australia

• An unexpectedly tough day for local traders on the ASX yesterday with the S&P/ASX 200 index down 21 points for a 0.37% fall. It could have worse though with the low on the day at 5,699 before the recovery. Naturally there were many moving parts underneath the overall index return. But overall the market continues to trade within the range the market has been unable to break out of for the past two and a half months.

• Unless or until we see a break of this range the local market is going nowhere fast. Naturally that doesn’t mean we can’t see some decent moves in individual stocks – as we saw yesterday - or sectors. But at an index level it seems Australian stocks need an offshore catalyst to wake them from their slumber.

• Today we get thee release of the weekly ANZ-Roy Morgan consumer confidence measure. But before that I thought it was worth highlighting what the Commonwealth Bank Of Australia's (AX:CBA) measure of transactions through its vast network of POS terminals. The year on year growth rate fell from 8.3% to 8.1%, but that is still a very solid result. Craig James, Commsec’s chief economist, said of the data that “Consumers may not feel confident, but they are still spending. The latest retail trade data showed this to be the case and the BSI has confirmed this also”. He added that business and government is also spending.

• That’s good news for the economy and for business. It also underpins the Australian dollar.

Forex

• The US dollar came under pressure again overnight losing 0.34% in US Dollar Index terms as the battle over the outlook for the dollar continues. I must confess to seeing this as simply a reaction to the US dollar strength we have seen recently and a continuation of the debate as to whether the US dollar has turned sustainably or whether the recent base forming – or attempt to forma a base as it may be - is just a pause in the continuing trend of US dollar weakness.

• Some say the US dollar is weaker because of tensions over North Korea. But I’ve also read that’s why the South Korean won is a little stronger against the US dollar this morning. My sense is however that the outlook for the US, and thus the economy and the Fed, is clouded for many traders and investors because of the uncertainty around the Trump presidency and its agenda. So for the moment, the path of least resistance for the US dollar is lower. Especially given that this little uptrend from the lows in the US dollar index has broken.

• Individually though quite a few pairs have a good reason to have rallied in the past 24 hours, some less so. But overall it’s been a relatively benign start to the week.

• Euro is the strongest of the majors with a 0.43% gain to 1.1810. No doubt the Bundesbank report on the strength of the German economy – and what that implies about ECB monetary policy has helped. The yen is benefiting from a little safe haven flow and has gained 0.3% with USD/JPY down at 108.87 – towards the very bottom of the 2017 range. That the Swiss franc has gained a similar amount with USD/CHF at 0.9620 suggests there is a little safe haven bid in these pairs.

• GBP is up 0.23% despite lingering questions about the outlook for the economy and as the government continues to issues papers on its bargaining position – wish list – for negotiations with the EU over Brexit. GBP/USD is at 1.2900.

• But that move toward forex safe havens hasn’t hurt the commodity bloc which usually suffers when risk goes off and aversion rises. For the Australian dollar at least that’s easily explained by the surge in iron ore, copper and other base metals in Shanghai – and then global – futures trade over the past 24 hours. It was clear watching copper yesterday that the price moves in Chinese metals more than validated the Aussie dollar’s move.

• The kiwi and Canadian dollar are a little stronger this morning. That’s despite the fall in Canadian wholesale trade with USD/CAD at 1.2564 after trading down below important support at one point. The kiwi is at 0.7318.

Commodities

• It’s that time of the month again when the expiry of the WTI contract can often contribute to increased volatility in oil prices. The front contract for WTI expires tonight so it’s consistent with what we’ve seen often at this time of the month that we get the types of moves we saw Friday when prices leapt 3% and then last night’s reversal of 2%.

• Explanations abound as to what drove the moves. But on balance, the news flow overnight was more positive than negative for oil prices. Reuters reports Daniel Gerber, chief executive of PetroLogistics said “OPEC-14 supply is expected to average 32.8 million bpd in August representing a decline of 419,000 bpd as compared to the 2017 high observed in July”. We also heard from the Kuwaiti oil minister who said – and I agree with him – that inventory falls in the US show that OPEC is having and impact. “We are now seeing the impact of those cuts (in the first half of the year) as U.S. oil inventories fall by more than expected…week after week we are seeing a much bigger-than-expected fall in inventories," he said.

• News also broke over the weekend that Libya's Sharara oilfield, the country's largest, has been shut down since Saturday because of a pipeline blockade. The price action is the price action and I won’t quibble with it. But I’ll be interested to see this week’s inventories and the market's reaction.

• Gold has gained from a weaker US dollar and a bit of risk aversion. It’s back up at $1,291 this morning up 0.6%. Gold is at an intriguing juncture with Friday’s high representing the 138.2% level of the July/August move from $1,204 to $1,274. It was above recent range tops as well. Which suggests gold could be a little toppy. Too early to say conclusively though yet.

• Copper rocketed again overnight up 1.3% to $2.9785 this morning. It’s a strong move higher with the move in keeping with the surge in Chinese metals markets. It also shows the beauty of the trend following approach many traders use. My own system got short and cut out of that position pretty quickly a couple of week’s ago but trend followers are likely still in this trade. $3.10 a pound sounds an amazing price from where we were a month or so ago. But that’s the 138.2% target of the October 2016 to February 2017 rally.

Have a great day's trading.