Originally published by AxiTrader
Quick Recap
While the headline writers wanted to say “stocks at new record” the Dow Jones Industrial Average is not the US market. It is 30 stocks and it’s index construction is a bit dodgy. So the subtle slide in the S&P is actually more representative of the move in stocks. Sure it was a cracking recovery but there is still much we do not know.
But forex traders are betting they know the winners and losers with the US dollar marching higher again, the Australian dollar ebbing again (Kiwi is down again this morning probably on the massive 7.8 earthquake), and the Euro is sliding.
Gold collapsed and Crude Oil fell.
What You Need To Know
International
- It was a momentous week last week and the new one begins with a massive data dump from China with the release of the monthly trifecta of retail sales, industrial production and urban investment today. Markets are usually primed and ready to rock and roll on this data under normal circumstances – but in the current environment the import of these three data points is probably taken up a notch or two.
- Elsewhere the post-mortems, recriminations, and crystal ball gazing about what a Trump presidency means continues. From my standpoint the initial recovery, post-election sell off, is not the same thing we’ve seen in recent years or what we saw in Brexit – this is not a broad-based recovery as tensions eased and markets recovered. This is a winner and loser picking event at the speed of light – there is much risk in this.
- As UKIP’s Nigel Farage said in an interview with the BBC over the weekend – “he hasn’t even taken office yet” – there is still much water to flow under the bridge.
- But the Dow finished the week up more than 5%, the S&P 500 was close to 4% higher as was the Nasdaq 100 which might surprise many.
- I’m not convinced by the price action in the S&P 500 futures. In the past week we have had a gap higher last Monday, collapse and recovery Wednesday (our time) and then the last two indecisive days of trade. The recovery looks unstable for the moment to me.
- Fridays Veterans day holiday left bond markets closed but rates have an upward bias and the original doctor doom – Henry Kaufman – has called the end to the secular bond market rally. Hard to disagree – but as readers know I’ve been saying this myself for some time. Key here is Trump is viewed as inflationary, reflationary,. But some believe the bond market selloff is self limiting because it will get to a point where it offers better value than stocks.
- That’s a handbrake on stocks rally as much as a bond selloff. We aren’t there yet though and the Fed is still on track to raise rates in December – if for no other reason to show they are still in charge. We’ll see what happens in 2017 though as Trump replaces Fed governors and looks for a new Fed chair when Janet Yellen’s term finishes in early 2018.
- Fed vice-Chair Stanley Fischer again reiterated the Fed is on track to hike in December.
- Chinese loan grown yoy ran at 13.1% slightly higher than expected with M2 money supply up 11.6%.
- Prosecutors are going to speak to South Korean president today about corruption claims.
- Watch out for president-elect Trump's first full interview to be aired during our time zone on US network CBS.
Australia
- A wild ride on the S&P/ASX 200 last week gave way to a pretty positive close with the index up 40 odd points on Friday to close at 5370. A leap seemed to come ride at the end of trade which helped make the gain look better than it was.
- So the futures traders might have it right with the December SPI 200 contract marked down 15 points on Saturday morning.
- Energy and gold stocks could come in for a pummelling given the moves in the commodity space while the 1.26% fall in basic materials in S&P trade Friday night doesn’t bode well for that sector here today.
- The market remains right on overhead resistance and could struggle.
Forex
- The US dollar pushed higher as the expected lift in inflation drives expectations of divergent central bank policy across the globe. That’s driving it higher against most of the majors, with that expectation – and geopolitical worries – driving emerging market currencies lower. The Mexican pesos is under pressure but so to is the Turkish Lira and other pairs.
- Likewise the Chinese yuan continues to weaken and USDJPY and EUR remain pressured. It's a broad-based US dollar rally and one that probably has more chance of sticking, given the Fed outlook relative to most central banks, than perhaps some sectors of the stock market rally.
- The Aussie is as good an emerging market proxy as you’ll get so it too was under pressure Friday closing at 0.7549. It’s down again this morning in sympathy with the Kiwi which has fallen after news of the 7.8 earthquake which hit north of Christchurch around 12.30am last night. They are sitting at 0.7535 and 0.7112 respectively.
Commodities
- Did you hear the one about OPEC agreeing the tentative production deal to kick prices higher and then went and pumped as fast as it could? Yep that’s what the latest data, released Friday, shows. OPEC data showed the cartel pumped 33.64 million barrels per day in October up 240,000 bpd on the previous month. Most of the increase came from the exemptors – Libya, Nigeria, and Iraq.
- That means OPEC has to cut at least 640,000 bpd to get to the top of the 32.5/33 million target of the Algiers agreement. Such a cut would lack credibility given the pumping record so it’s likely a real deal of around 1 million bpd to take production closer to the 32.50 million bpd side of the range is necessary and would allow for variation – if I can call it that.
- IF $43 a barrel breaks in WTI terms prices could head back under $40 pretty quickly.
- Gold collapsed on Friday night as traders fret about bond rises and stocks rally. From a technical point of view this is entirely understandable. The longs got caught, gold collapsed back to support and once broken the dam burst and we are back here at the $1225 region I noted gold might need to fall to (not sure if I wrote that here or said it in my morning videos though).
- I like gold in this $1200/$1225 region – as long as it doesn’t break back inside the previous downtrend that is. Here’s the weekly chart.
- Copper – what a wild ride but a top might be in place for a bit.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Nil
- China - Retail Sales (YoY) (Oct), Industrial Production (YoY) (Oct), Urban investment (YTD) (YoY) (Oct) (1pm)
- Japan - Gross Domestic Product Deflator (YoY) (Q3), Gross Domestic Product Annualized (Q3), Gross Domestic Product (QoQ) (Q3) (10.50am); Industrial Production (YoY) (Sep), Industrial Production (MoM) (Sep), Capacity Utilization (Sep) (3.30pm)
- Germany - Wholesale Price Index (YoY) (Oct), Wholesale Price Index (MoM) (Oct) (6pm)
- EU - Industrial Production w.d.a. (YoY) (Sep), Industrial Production s.a. (MoM) (Sep) (9pm)
- UK - Inflation Report Hearings (9pm)
- Canada - Nil
- US - 3-Month Bill Auction, 6-Month Bill Auction (3.30pm)
Have a great day's trading