Originally published by AxiTrader
Quick recap
Oil, stocks, bonds, and commodity currencies slid into week's end Friday in what continues to be a market dominated by technical traders. That is, despite all the big news and events the fact that markets continue to respect important chart points across many markets tells you no-one really has a good medium term handle on the next big trend.
So while it's quiet week of data ahead there is plenty of events with the presidential debate, and speeches from Draghi, Kuroda, Yellen and a bunch of other Fed officials. And of course, it looks like traders need to deal with another OPEC mis-fire.
What You Need To Know
Here’s what I picked up
International
- Crude Oil was sharply lower on Friday as the likelihood of an OPEC deal once again seem to recede into the ether. That dragged US stocks lower with the energy sector the worst performer down 1.23%. At the close the Dow Jones Industrial Average was 0.71% lower, the Nasdaq 100 dropped 0.63% and the S&P 500 was 12 points lower at 2164 for a loss of 0.57%.
- There was a little bit of Fed speak Friday with Minneapolis Kashkari at odds with Boston’s Rosengren. Kashkari said the risks are asymmetric at the moment because Fed policy can effectively deal with higher inflation and stronger growth but struggles with weaker growth and lower inflation outcomes – it’s an excellent point and one that is very hard to refute. But that doesn’t mean Boston’s Rosengren doesn’t think the Fed should get on with it and hike. Of course he dissented from the decision to leave rates on hold last week so you’d expect that.
- Possibly the biggest piece of news though was the fall in longer bond rates and the accompanying flattening of the yield curve. That will go some way to ameliorating some of the recent equity valuation concerns. US 10s closed at 1.6150% on Friday, well down from the previous week’s high of 1.75%. German 10s were back below zero with a yield of -0.08%, Japanese 10s are at -0.05%, and 10-year gilts in the UK ended at +0.72%. That’s well down from the 0.95% peak the week before.
- What a week we have a head of us. Certainly no big events in terms of economic releases, it being the last week of the month, but we have speeches by Fed chair Yellen, ECB boss Mario Draghi, and Japan’s BoJ governor Kuroda. We also have another 10 or so Fed officals speaking as well as the OPEC meeting.
- Interestingly on the Mario Draghi Speech it’s looking like German lawmakers, including finance minister Schaeuble, are after his head. Recently Schaeuble came back from the recent G20 meeting saying he knew the government needed to do more – it’s a strong indication that the world is moving toward fiscal accommodation. That’s important for growth and reflation. But politicians also play politics and if he is after Draghi to give cover for what might be uncomfortable moves in German fiscal policy this could get ugly. Bild reported that Schaeuble told lawmakers in the Bundestag to push him to defend his policies this week. Reuters is reporting that Michael Stuebgen, a conservative member of the German parliament said “It is time for the ECB to change course”. Watch this space for bonds and EUR/USD and the Euro crosses.
- And of course the US Presidential debate Monday evening US time is really something to watch. Now that the Fed is out of the way and off the table till December, and now that we are closing in on the November 11 vote traders the world over will be watching the results of the debates, this is the first of three, very closely. That’s because many traders think a Trump presidency would be initially bad for stocks. A bit like trendlines and other important technical levels that means if trump gains the ascendancy that fear could become a self-fulfilling prophecy. It’s not a comment on Trump, or indeed Clinton, simply a reflection that investors often invest with an eye to what they think others would do. Otherwise why else would you buy bonds with negative rates? And don’t tell me TINA.
Australia
- The S&P/ASX 200 rose 57 points on Friday to finish at 5431, up 1.06%, and exceed my target of a return to 5420 to close some of the GAP on the S&P 500 that opened up with August’s local collapse which continued into this month.
- Friday’s dip in US stocks, and the not insubstantial closing of that gap, suggests a slightly weaker open for the week. The Dec SPI 200 furtures contract is down 24 points at 5396 suggesting the market will open a little under pressure.
- Certainly oil stocks will come under heavy selling pressure and there is every chance crude has a tough day in Asia after the Russian oil minister’s comments (see below) over the weekend.
- This week there is not a lot of local catalysts on the economic or data front. RBA assistant governor Edey is talking Wednesday but the data is second tier and the big moves will be driven by offshore moves in stock, bond, and commodity markets.
Forex
- The US dollar ended the week down around 0.7% in dollar index terms. That ‘s going to be frustrating a lot of forex traders who were hoping for bigger moves in the wake of the BoJ and fed meeting’s last week. But technical traders have the market by the nose and are leading prices around and respecting levels when they hold, or break. The list of reversals off resistance or support is myriad in the past couple of week’s and this week looks like another week where technical, charts, and levels are the key.
- As it stands at the Monday morning open the Euro is 1.1222 – hardly moved. The USD/JPY rate is building and respecting a base – it’s at 101.05. In the UK worries about Brexit knocked the pound sharply lower and it’s at 1.2961 this morning. The CAD lost ground with oil and USD/CAD is back at 1.3161.
- Sterling is the very essence of a technical trade as this 4 hour chart since the Brexit low shows.
- Looking at the AUD/USD and it was a down day after the rally to 0.7675 on Thursday night. A little bit of risk off is never the Australian dollar’s best friend and it is trading at 0.7611 this morning and looking a little pressured. 76 cents was the level the technical suggested Friday and the low was 0.7606. On the day 0.7586 looks like it could be a tractor beam.
- But the Aussie is not weak against the Kiwi (which was hammered and is back at 0.7246) so the AUDNZD is at 1.0510 and almost through the 105.50 level I highlighted Friday. There are lots of calls now emerging for AUDNZD to head higher. 107 here we come.
Commodities
- What an interesting week for oil traders the five days just past were. It was a week of strong gains on hopes of a deal arising from this week’s OPEC meeting in Algiers. That drove prices to resistance at $46.50 (WTI terms) before they hit over head technical resistance which was then reinforced Friday by a real sense this is going to be another failed OPEC meeting.
- That’s despite the fact the Saudi’s offered an olive branch to Iran in terms of a Saudi production I Iran agrees to cap its own production. But the Iranian suggested they couldn’t cut until they reach pre-sanction levels at the earliest.
- So as hopes faded for a deal this week WTI fell 4% to $44.48, while Brent dipped all the way back to $45.89. Even though Ecuador’s president said over the weekend a deal needs to be done traders are likely to focus as we kick off the week on comments from the Russian oil minister Novak is reported to have said on Sunday a deal is “non-critical”. But the moves by the Saudi’s suggest a deal will come in time – could we get a shock this week? It’s a non-trivial possibility. But overall the past few week’s moves suggests a deal will eventually occur. Here’s the WTI chart.
- Gold had a really good week ending at $1337 after the Fed pass weakened the US dollar a little. Where as it found support at the trendline from the December lows now it has overhead resistance in the $1347/52 region. Shorter term and thus, for the moment, less str4ong, but markets are trading very technically as I noted above.
- Copper is up at $2.1925 on the back of a bit of a risk on rally, China not collapsing, and a nice technical outlook which is starting to look like my $2.20 target might actually extend a few more cents yet.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Trade Balance (YoY) (Aug), Exports (Aug), Imports (Aug), Trade Balance (MoM) (Aug) (8.45am)
- China - Nil
- Japan - Corporate Service Price (YoY) (Jul) (9.50am)
- Germany - IFO - Business Climate (Sep), IFO - Current Assessment (Sep), IFO - Expectations (Sep) (6pm)
- EU - Nil
- UK - Nationwide Housing Prices s.a (MoM) (Sep), Nationwide Housing Prices n.s.a (YoY) (Sep) (4pm); BBA Mortgage Approvals (Aug) (6.30pm)
- Canada - Nil
- US - New Home Sales (MoM) (Aug), New Home Sales Change (MoM) (Aug) (12am); 3-Month Bill Auction, 6-Month Bill Auction (1.30am)
Have a great day's trading