Originally published by AxiTrader
Key Takeaway
Stocks in Europe surged to catch up on the previous night's recovery from the lows the previous night in US stocks. But things were quieter in the US and the big indexes are currently mixed after a fairly benign, and very short FOMC statement this morning.
But in many ways the big news is that the US has put Iran “on notice” over the recent missile test it conducted. gold and of course oil are running higher as a result.
On forex markets the US dollar is a little better bid. But sterling has had a very strong night as traders wait for a possible outlook upgrade from the BoE tonight.
What You Need To Know
- S&P 500 +2 (0.07%) 2280
- Dow +27 (0.14%) 19890
- Nasdaq 100 +28 (0.5%) 5642
- SPI 200 +9 (0.2%) 5608
- AUDUSD 0.7582 +0.01%
- Gold $1209 -0.1%
- WTI Oil $53.56 +1.4%
International
- It’s all about the Fed really this morning. Or at least waiting for the Fed which has just released its decision and Statement at 6am Sydney time. But it was a bit of an anticlimax insofar as the Fed statement completely straight batted the current outlook and added little fresh information on the outlook for the US economy. Indeed it was a very short statement which didn’t seem to reflect the recent upbeat speeches on the economy by Janet Yellen and her colleagues in 2017.
- The Fed kept rates on hold as expected with the opening paragraph telling you all you need to know.
- “Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate stayed near its recent low. Household spending has continued to rise moderately while business fixed investment has remained soft. Measures of consumer and business sentiment have improved of late. Inflation increased in recent quarters but is still below the Committee's 2 percent longer-run objective. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance.”
- Here’s something interesting which helps make the case Trump Trade negotiator Navarro made about Germany the other night. Reuters reported that Germany’s net claims on the ECB hit 754.2 billion euros in December. That’s a new record as the combination of the trade surplus and other inflows – investors and other savers parking cash – puts money into the German banking system. Recently Mario Draghi said these claims would need to be settled if the Euro dissolved. “If a country were to leave the Eurosystem, its national central bank's claims on or liabilities to the ECB would need to be settled in full” he said last month in a letter to Italian lawmakers.
- Which is where I get to Navarro’s point. If Germany still had the Deutsche Mark inflows, as represented by the growing claims on the ECB, would cause upward pressure on the German currency making its companies less competitive all other things equal.
- As with many things Trump associated the Administration is not exactly all wrong, however ham-fisted the execution has been, and however awful the rhetoric.
- Also out last night was the ADP employment report which shot the lights out with a massive print of 246,000 against expectations of 165,000.
- PMI data over the past 24 hours has been reasonable. Japanese PMI printed 52.7, Italian and French manufacturing PMI’s were both over 53, Germany’s print cam in better than expected at 56.4. In the UK the print of 55.9 was another sign the UK economy has so far weathered Brexit well. In the US the Markit manufacturing PMI printed 55 while its longer run ISM cousin printed a very healthy 56 – that’s a two year high. Canadian PMI hit a 3 year high. That’s global reflation folks – even before Donald Trump.
- I wondered about the timing of Iran’s missile test the other day. Seemed aggressive and Reuters reported a little before 6am this morning that “BREAKING: White House national security adviser Flynn says U.S. is officially putting Iran on notice after ballistic missile launch”. The US has now put Iran “on notice”. Oil and gold are up after that.
- President Trump's National Security Adviser Gen. Michael Flynn said "The Obama administration failed to respond adequately to Tehran’s malign actions, including weapons transfers, support for terrorism, and other violations of international norms...The Trump administration condemns such actions by Iran that undermine security, prosperity, and stability throughout and beyond the Middle East and place American lives at risk."
- The Senate republicans have jammed through Trump's nominations for Secretary of State and Treasury overnight
Australia
- A better day yesterday for Australian stocks with a 0.57%, 32 point, gain, as traders reacted positively to the recovery in US stocks which left Australian stocks (and European markets which played catch up last night) over sold relative to sentiment and the price move in the US. Overall we had more winners than losers with the miners having a cracker yesterday with BHP Billiton Ltd (AX:BHP) and Fortescue Metals Group Ltd (AX:FMG) making strong gains. Energy did well also and the banks joined in the buying as well. Gold miners did well as the shiny stuff climbed back above $1200 and ounce.
- The recovery yesterday reinforces 5600 as the near term support zone on the physical market. Equally it also supports the overall notion that the ability of the US markets to hold onto its Trumponomics gains is a key driver of global stocks.
- One thing worth noting about the local stock market, it’s important for the outlook, is that there is a global reflation happening even before Donald Trump adds fiscal and tax relief stimulus to the US economy. The PMI data we got yesterday from China for both manufacturing and services was another solid set of numbers, while the US and European PMI’s and even the Japanese data, suggests the globe is picking up again.
- That will help our miners, our exporters, and global stock market sentiment. There are still many risks of a market funk should Donald Trump continue to increase uncertainty or should the market get a sense that stimulus will be delayed. But the longer this reflation persists the bigger the chance that investors start to believe the rallies we’ve seen in commodities and then move to reprice resource stocks – yes even higher. Yesterday while I was co-hosting Sky Business at Lunchtime with Leanne Jones from Sky and Henry Jennings from Marcus Today we discussed the outlook. Henry really likes resources and in an interview with Tom Richardson from Watermark funds he noted Fortescue's price currently only reflects expectations of $60 iron ore. Yet the price is at $80+ at the moment.
- $7 for FMG seems rich on the charts – but hey, the trend is your friend right.
Forex
- The US dollar had rallied a little across the board overnight with the US Dollar Index back up near 100 this morning before the Fed announcement of no change and its benign statement that accompanied that. But it's been back down to 99.50 since 6am when the Fed statement came out as traders appear disappointed with what the Fed didn't say - that is they didn't update growth in line with what might have been expected given speeches by Janet Yellen and other Fed figures during January.
- That means the US dollar, at least in Index terms, is not out of the woods by any stretch of the imagination. But the data last night – especially ADP employment data which could imply strong non-farms tomorrow night – has certainly helped the US dollar retain support at this important level.
- Naturally no one really expected the Fed to move rates this morning. But the FOMC statement did not reflect the recent rhetoric we’ve heard from Janet Yellen and her colleagues about the strength of the US economy. Indeed the statement says “Near-term risks to the economic outlook appear roughly balanced.” Risks balanced? Really? I don’t believe they really think that. And I’m betting traders don’t either.
- Anyway even with that US dollar recovery the pound has had a cracking night. GBPUSD is the strongest of the G10 currencies with again of 0.7% to 1.2660. It seems to me that the ability of the UK economy to remain in relatively good shape and deny the doomsayers – including the Bank of England – is behind the buying we are seeing again in Sterling. That the pound managed to do so well even though the US dollar was a little stronger is a reflection both of the latest data flow and the looming BoE decision tonight where there has to be a real chance that the bank updates its outlook for the currency. Technically the 1.2735/65 region is both the target and resistance – GBP/USD was recently trading at 1.2659.
- Elsewhere in forex land the Yen is 0.45% weaker with USDJPY up at 113.26, euro is down a little at 1.0757, and the Australian dollar is largely unchanged at 0.7577. Yesterday’s China PMI should have helped the Aussie. But it’s still all about the US dollar
Commodities
- Crude is having an incredibly good day given the big build in inventories we saw overnight. EIA data showed crude stock piles rose 6.466m barrels against expectations of a 3.84m build. But Nymex crude is up 1.4% to $53.54 a barrel with Brent up 1.8% to $56.71.
- In no small part this rally is a result of the US calling out Iran over the recent missile test. Earlier this morning prices where only marginally higher but have rallied more than one percent after the US put Iran “on notice”.
- Gold is a little better bid as well since the news broke. It’s trading $1209 from around $1205 prior. $1220 is still the big level to watch.
- Copper has dipped a bit but is still strong at $2.70 a pound
Today's key data and events (all times AEDT)
- Australia - Building Permits (MoM) (Dec), Building Permits (YoY) (Dec), Trade Balance (Dec), Exports (Dec), Imports (Dec) (11.30am)
- New Zealand - Nil
- China - Nil
- Japan - Foreign investment in Japan stocks (Jan 27), Foreign bond investment (Jan 27) (10.50am); Consumer Confidence Index (Jan) (4pm)
- Germany - Nil
- EU - Economic Bulletin (8pm); Producer Price Index (MoM) (Dec), Producer Price Index (YoY) (Dec) (9pm)
- UK - PMI Construction (Jan) (8.30pm)
- Canada - Nil
- US - BoE Asset Purchase Facility (Dec), BoE Interest Rate Decision (Dec 15), Bank of England Quarterly Inflation Report, BOE MPC Vote Unchanged, BOE MPC Vote Cut, BOE MPC Vote Hike, Bank of England Minutes (11pm); Challenger Job Cuts (YoY) (Jan) (11.30pm); Initial Jobless Claims (Jan 27), Continuing Jobless Claims (Jan 20), Nonfarm Productivity (Q4), Unit Labor Costs (Q4) (12.30am); EIA Natural Gas Storage change (Jan 27) (2.30am)
Have a great day's trading.