Quick Recap
Stocks drifting, the US dollar a little weaker – except against Sterling, oil down (now we’re all worried about gluts again), gold up a little, the Aussie is the little engine that might – break resistance.
What You Need To Know
International
- Stocks in the US were much quieter than their European counterparts which had a very solid day. The DAXrose 2.5%, the CAC 40 was 1.2% higher, and the FTSE 100 climbed to a 13 month high of 6851 with a 0.62% gain.
- Across the Atlantic the S&P 500 made a high at 2187 but it’s back at 2181 US data wasn’t on the flash side and the weak productivity growth has some folks question the outlook for corporate profitability given all the hiring that is going on in the economy.
- Here’s what Reuters reported Deutsche Bank’s Joe LaVorgna said:
“The Labor Department said on Tuesday that productivity, which measures hourly output per worker, dropped at a 0.5 percent annual rate in the April-June period. It was the third consecutive quarterly decline, the longest such stretch since 1979. "The reason the economy has still been able to expand is because of labour input. Firms are hiring people at a reasonably healthy rate," said Joseph LaVorgna, chief economist at Deutsche Bank (DE:DBKGn) Securities in New York.
"However, we do not believe this can last, because strong hiring in the face of weak productivity necessarily implies a further deterioration in corporate profit margins."
- Interestingly the Bank of England couldn’t get all of the bonds it wanted to buy in its new QE program. Personally why would you sell them if you own them. You’ll make money as the BoE bids them lower.
- OH and China. Seriously this is important. China might be belting poor young Mack Horton about his comments but the nation is becoming increasingly belligerent in its neighbourhood. AS we know one of the State Run papers had a pop at Australia over the South China Sea and implied Australian vessels should be taken out if the conduct FONOPS. Then it sent a fleet of ships to wind up the Japanese over disputed islands and now it getting ballsy with South Korea over the new missile defence system. It’s not an issue for traders and hopefully it stays that way but it bears watching closely as it plays out…many fronts mean chances of a miss step or escalation are high.
Australia
- After a 14 point rally on the S&P/ASX 200 yesterday the SPI is up another 10 points. Whether or not the market can hold onto that gain when the Physical market opens trade today will be interesting. Not huge impetus from the miners overnight, banks mixed (ZEW did an EU bank stress test Fed-style which was ugly) and of course we have the result from the Commonwealth Bank Of Australia. (AX:CBA) today.
- Yesterday Shayne Elliott at the ANZ Banking Group (AX:ANZ) didn’t guild the lily saying the economy is going to do it tough for a while and trying to make the case for why depositors are as important as home owners – furphy alert.
- The CBA’s report will be more comprehensive given it’s the company’s actual results but I expect a focus on the challenges the company faces and why it had to retain a big chunk of the 25 basis points RBA rate cut.
- Governor Stevens speaks today for his last speech as governor. The Anika Foundation has been his most important and scene setting speech each year for some time so I’m guessing this is going to be a big picture look back and forward at the challenges the economy faces. There could be subtle hints on the outlook for interest rates.
- You could say they are late to the party. But yesterday’s about face from the NAB on rate cuts and maybe even QE – regardless of still solid Business survey – was a remarkable move. But it was also a recognition really that the RBA cut was not about the economy at all but far of inflation remaining low for too long and gaining traction in the economy and at a consumer expectations level. There are so many negatives that can flow from that and the NAB believes the RBA is going to fight and fight hard. Alan Oster also said he thinks the economy is slowing down again.
- Aussie dollar traders don’t care at the moment though because they have to see the cuts first.
Forex
- The AUD/USD is back up testing resistance, as the US dollar is a little weaker across the board. The AUD made an overnight high of 0.7687 which was above the July range top and suggests the momentum continues to build for the Aussie to head up toward 78 cents. Right here and now it’s hard to make a short term case as to why the Aussie dollar would collapse.
- Annette Beacher from TD Securities made a nice case for why 76 cents is around fair value for the Aussie right now. Scutty wrote the note up at Business Insider yesterday. In my own piece on the Aussie outlook yesterday I used a chart of the AUDUSD and the CRB commodity index but I really liked Annette’s AUD v Iron ore chart.
- Looking at the US dollar in Index terms and it looks like it could have stalled already even though non-farms was so strong. US 10’s were lower last night at 1.54%, the 2’s were back at 0.71% and it seems traders are still thinking the Fed is going to be a very slow hiker. That’s despite Goldman saying a hike is now a 75% for 2016. But then again Morgan Stanley (NYSE:MS) disagrees – so we have a market.
- As you can see here – the DXY needs to clear this congestion zone to kick on.
- So elsewhere on forex markets the Euro is back above 1.11 at 1.1111, USDJPY is down half a per cent at 101.89 and only Sterling really came under pressure. It’s just managed to get back above 1.30 now. The culprit for the move in the 1.29’s was said to be external BOE MPC member McCafferty’s comments about the potential for rates to fall. But if that’s correct traders need to read his whole piece because he was far less dovish than the headline they grabbed. BUT clearly folks just want to sell pounds (we could sing that to the tune of a Cyndi Lauper song)
Commodities
- As we’ve been discussing for a while now Crude is a traders market. The low last week was just above important technical support and then the high two nights ago was right on shorter term technical resistance. So oil is lower again this morning and folks are now worrying about a supply glut – even though the the IEA upgraded its demand forecast for this year by 10,000 barrels a day to 1.45 million bpd.
- So all in all WTI Crude is down 0.72% at $42.71 while Brent is off 1.04% at $44.92 a barrel.
- Gold is up a little respecting that trendline for the moment, at least kind of. It’s at $1340 this morning.
- Copper is down again ($2.1470 a pound) after plenty of prominence was made of what it’s recent price movements, and inventory levels, might be saying about the Chinese economy.
- Iron ore was down around 1% in US futures trade.
Surprisingly so much to talk about – I’ve even left plenty out.
Today's key data and events (all times AEDT)
- Australia - Westpac Consumer Confidence Index (Aug), Westpac Consumer Confidence (Aug) (10.30am); Investment Lending for Homes (Jun), Home Loans (Jun) (11.30am); RBA's Governor Glenn Stevens Speech (1.05pm)
- New Zealand - Nil
- China - Nil
- Japan - Domestic Corporate Goods Price Index (MoM) (Jul), Domestic Corporate Goods Price Index (YoY) (Jul), Machinery Orders (MoM) (Jun), Machinery Orders (YoY) (Jun) (9.50am); Tertiary Industry Index (MoM) (Jun) (2.30pm)
- Germany - Nil
- EU - Nil
- UK - Nil
- Canada - Nil
- US - MBA Mortgage Applications (Aug 5) (9pm); JOLTS Job Openings (Jun) (12am); EIA Crude Oil Stocks change (Aug 5) (12.30am); 10-Year Note Auction (3am); Monthly Budget Statement (Jul) (4am)
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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