Quick Recap
Well, Well, Well, the Fed is dealing itself back into play, that weighed a bit on stocks and bonds but didn’t help the US dollar because the market doesn’t believe them. I think the market might be wrong.
Crude Oil was up again, gold rallied because the Fed might be having a civil war, and the AUD/USD is back up near 77 cents. And of course BHP Billiton Ltd (AX:BHP)
What You Need To Know
International
- Let’s talk about the Fed. Here’s the question for the market and for traders. Is the fed, again, having a civil war over the path of interest rates or are they actually trying to set the market to rights so they can hike later this year. Last night both Dennis Lockhart and Bill Dudely wouln’t rule out September as a live meeting. I don’t think it is actually live but I think they ARE prepping the market for a signal that the Fed is going to hike at least once this year.
- Now of course CPI printing flat at 0.0% in July means the fed can run the economy hotter than they might feel comfortable – something that in this world of moribund growth is worth the risk. But the counter argument is they need to use this period of strength in jobs and wages growth to increase rates so they have room to drop them again if the economy stalls. That’s something San Francisco Fed president Williams alluded to over the weekend.
- But the washup is no one really knows – and are unsure – which is why I think the fed the trying to signal its intent to raise at least once in 2016.
- But the world’s best, and unfortunately outgoing, central banker says the world can cope with another fed rate rise. Speaking to the WSJ Stevens said “I can’t see why the global economy is really any less ready for No. 2 than it was for No. 1. It’s as ready as it has ever been in any of the other episodes…It’s always hard to raise rates anywhere.”
- To the markets and at the close the S&P 500 is off 12 points (0.55%) at 2178, the Dow Jones Industrial Average is off 0.45% and the Nasdaq 100 is off 0.66%. That follows a similarly weak lead from the UK, Europe, Japan and most of Asia. Look at this S&P 500 chart - that looks like a short term top.
- Rates are a little higher as a result of the Fed comments – although not materially so with the US 10’s at 1.5763
Australia
- An 8 point fall on the S&P/ASX 200 yesterday is to be followed by a 5 point drop at the open today if SPI 200 futures are any guide. Both moves are just daily noise and tell us nothing about the state of the actual market. technically though, as readers know, I like this market lower.
- Today’s discussion is likely to be dominated by BHP’s report yesterday afternoon. After its massive 6.4 billion dollar loss there is every chance though that BHP has done an ANZ. That is cleared the decks so folks can start to focus on the upside for the company from here. Comments from CEO Andrew Mackenzie that commodity prices were no longer in free fall is an important atmospheric for those folks who aren’t immersed in the market every day – or who don’t read this note or watch us on Sky where we’ve been discussing this for months.
- Here’s Mackenzie “Steadily, the end of the supply creation on the back of the China boom is coming to an end, product by product, and that's putting more of a floor under price than perhaps perceptibly existed maybe a year ago”. The question for traders though is after a massive rally this year they want to take BHP much higher. But I’ll say a move toward $22 might be on the cards before the sellers hate it again. BHP was up a smidge overnight in London.
- In a Macro sense the release of the wage price index at 11.30 today is going to be interesting for Aussie traders. Wages have been collapsing in Australia and this is unlikely to show any material trend change. Why does that matter? Because I find it hard to argue even at low rates Australians will dig into their savings to consume given high debt levels. That means retail sales and consumption growth reverts to the level of wges growth.
- But it’s not just me – yesterday the RBA said in the Minutes (our emphasis) “forecasts implied a further slight decline in the household saving ratio, but there was some uncertainty about whether households would respond to developments affecting their disposable incomes by adjusting consumption growth or altering their saving rates”.
- Wages matter.
Forex
- The Fed might be warning that there is a chance of a rate rise in September but no one believes them in forexland and the US Dollar Index is down 0.88% this morning at 94.782 as the EUR/USD rallies up toward 1.13 (up 0.8% at 1.1273) and the USD/JPY sits just above 100 after dipping to a low of 99.56 overnight at one point. It’s at 100.27 down 0.96% this morning.
- Here’s the US dollar index – it’s trapped in many ways and the yen has support below 100 and the Euro resistance above – so this could be an interesting battle.
- The Aussie dollar had a cracking rally up to 0.7750 at one point last night but it couldn’t kick on and crashed into resistance again. It too has solid levels that it can’t get through yet. It’s back at 0.7694 at the moment up just 26 points for a gain of 0.34%.
- Folks seem to love the Aussie at the moment and I saw a quote from Roger Price at Nikko saying that he can’t see a reason to sell the Aussie at the moment. But someone is every time it gets up the4re around the resistance at 0.7750/80.
- The NZD/USD in contrast hung onto its gains and is up 1% at 0.7275 – the RBNZ might be having an adult beverage already this morning.
Commodities
- Crude is up again with WTI putting on another 2% at $46.64 and breaking the larger time frame downtrend line. It’s still a long run toward the next OPEC meeting everyone is hot about – not till the end of September I believe – so I don’t expect this to run for another 3-5 weeks. But as mentioned yesterday if resistance at $47 gives way it’s the low 50’s the chartists will be looking at once again. Brent Oil is up 1.92% at $49.28. Here’s the WTI chart.
- Gold rallied almost $9 dollars, 0.66%, last night and is back at $1347 this morning. US dollar weakness, uncertainty about the Fed, stocks a little lower, and arguments at the Fed are all friends to gold.
- Copper is up and away from the important support zone. It rose 1% to $2.1735 overnight
- Iron ore is up both in terms of the Metal Bulletin and overnight futures trade. By either measure Iron ore is back aboe $60 a tonne.
Today's key data and events (all times AEDT)
- Australia - Westpac Leading Index (MoM) (Jun) (10.30am); Wage Price Index (QoQ) (Q2), Wage Price Index (YoY) (Q2) (11.30am)
- New Zealand - GDT Price Index (n/a); Producer Price Index - Input (QoQ) (Q2), Producer Price Index - Output (QoQ) (Q2), Employment Change (Q2), Unemployment Rate (Q2) (8.45am)
- China - Nil
- Japan - Nil
- Germany - NIl
- EU - Nil
- UK - Claimant Count Rate (Jul), Claimant Count Change (Jul), Average Earnings including Bonus (3Mo/Yr) (Jun), ILO Unemployment Rate (3M) (Jun), Average Earnings excluding Bonus (3Mo/Yr) (Jun) (6.30pm)
- Canada -
- US - MBA Mortgage Applications (Aug 12) (9pm); EIA Crude Oil Stocks change (Aug 12) (12.30am); FOMC Minutes (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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