Originally published by AxiTrader
Key Takeaway
Positivity is the new black.
That’s the sentiment today as traders sell a little gold, US and German and US bonds, buy stocks, European periphery bonds as well as buying in the US dollar.
The change in tack, coming just a day after the headline writers were want to say the Trump reflation rally had ended, came after a neat confluence of strong US data and comments from president Trump that his tax plan is only week’s away.
Don’t underestimate the impact of news overnight, a piece of information traders probably assimilated most positively, was a poll in France which said Marine Le Pen would win round one of the French election but then get clobbered by a margin of almost 2:1 in the run off election. French stocks and bonds outperformed as a result.
What You Need To Know
- S&P 500 +15 (0.63%) 2309 (7.37 am Sydney)
- Dow +120 (0.61%) 20,176
- Nasdaq 100 +36 (0.63%) 5718
- SPI 200 +26 (0.5%) 5636
- AUDUSD 0.7630 -0.1%
- Gold $1231 -0.82%
- Oil $53.05 +1.36%
International
- Stocks are higher, and bond rates too, after strong data in the US and comments from President Trump the tax plan is coming.
- With about 90 minutes to go before the close the S&P 500 is up 15 points for a 0.63% gain. 389 stocks in the index are higher with only basic materials (-0.33%) and Utilities (-1.04%) in the red. The latter’s fall suggest animal spirits are back from their little hiatus.
- On the other US indexes the Dow Jones Industrial Average is also up nicely with a 0.68% to 20188, and the Nasdaq 100 is a similar amount. The broader Russell 2000 is up an incredible 1.45%. Animal Spirits folks.
- On the data front jobless claims printed 234,000 – much better than expected with wholesale inventories for December up 1%. Both data suggesting the US economy is doing okay.
- ON president Trump, as a father I get his desire to stand up for his daughter Ivanka – any dad would. But as POTUS it plays badly because as I noted yesterday that worries traders, investors, and me that the president might get bogged down in side issues. So like the rest of the market, I was pleased to here he is moving forward on his tax plan. I think that repointing toward his policy platform is what has buoyed investor sentiment.
- Speaking to CEO’s of US airlines he said his “phenomenal” tax plan would be out in the “next two or three weeks.
- MARK THE DATE - Janet Yellen will address congress February 14.
- Speaking of the Fed St Louis recalcitrant rate hiker James Bullard said overnight that the Fed might only hike once in 2017. Rembert he’s the fellow who believes that the US economy has paradigm shifts in economic growth which are then sticky. He believes the US is currently in a low growth/inflation paradigm presently.
- Bullard said “It is unlikely that fiscal uncertainty will be meaningfully resolved by the March meeting. We don't have to move. We have a lot of fiscal uncertainty. Why not wait until that is more clearly resolved?". That means he might shift his paradigm when we do actually get that information though.
- Data out of Germany might have given US trade negotiator peter Navarro some ammunition with the 2016 trade surplus hitting a new record level of 252.9 billion euros. Two other things Germany is doing are interesting as well. Reuters reports it’s bringing its gold horde home faster than expected – trouble ahead? – and it is going to seek to keep recent G20 language on trade, currencies, and climate change during its presidency.
- Iran is having a bit of fun with the Trump administration and was again goading it overnight. I’m paraphrasing based on a translation I heard but the Iranians effectively said they are good neighbours, will continue to be, and aren’t scared of American threats because they won’t follow through.
- On a happier note we now know that Donald Trump has written to Chinese President Li seeking a constructive relationship. I know I’m panglossian but I really do hope that this Administrations early days give way to a more considered plan, and crucially implementation. I’m hopeful president Trump will be like the computer in the 1983 Hollywood movie War Games and learn.
Australia
- The ASX climbed above the one month down trendline yesterday rising 13 points, 0.23%, to 5664%. That’s a positive as is the overnight move in US stock markets which have pushed the SPI 200 futures contract up 0.5%, 26 points, to 5634. In pure index terms the ASX200 has resistance from the 38.2% retracement level of the down move at 5676 and then the 200 day moving average at 5691. If it can best these levels the outlook will turn.
- But again the moves in index values are presently, and potentially for a while yet, mask the big moves in underlying individual stocks and sectors. That is, the index represents the summation of all companies and sectors but given global reflation is occurring, and given Trumponomics is expected to add to that, and given Trump appears to see trade and foreign exchange policy as a zero sum game of winners and losers we have entered the realm of the asset allocator and stock pickers.
- That’s not a bad thing – it just means this is the Duck market – much more going on underneath the water than appears on the surface.
- RBA Governor Phil Lowe was on the hustings last night again beating the drum for solid Australian growth in the years ahead. Like he did in his statement after Tuesday’s interest rate decision the governor reiterated his belief Australian growth looks positive in the years ahead and will head back toward potential at 3% and stay there. He also said inflation will gradually rise and noted the “complex” picture in the Housing market. It was a clear sign that the chances of a rate cut in Australia if the economy performs as the RBA expects are low. The implication of forecasters saying there will be rate cuts in light of what the bank has been saying for the last 4 months is that pundits are betting the RBA will be wrong.
- Now that the RBA has had two opportunities this week to set out their view it would be unlikely there are any surprises in the quarterly Statement on Monetary Policy to be released this morning. But I am looking forward to read their discussion on housing.
Forex
- As the forex markets safe haven the Yen is the big loser in the past 24 hours losing 1% as USDJPY trades back above 113.
- The key of course is that with stocks higher, gold lower, peripheral European bonds bid – while US and German bonds rose – there is a real sense of positivity in markets this morning. That could prove ephemeral. But it has been good for the US dollar which has hammered the yen and seen USD/JPY break up toward resistance.
- The breach of the previous days high at 112.54 took my system out of its short. Here's the chart
- Euro is down at 1.0658, the kiwi is sitting at 0.7184 after the RBNZ jawboned it lower – it down 1.18% from 9am Sydney yesterday and around 2 cents from Wednesday nights low.
- NZDUSD hit the 0.7175 target I highlighted yesterday with a low of 0.7172 overnight. That means the easy move is behind NZD/USD. But the outlook for the moment still looks negative for the Kiwi.
- The Aussie is hanging tough with another low above 76 cents overnight – positive sentiment helps the battler. And a good dose of positivity from the governor of the RBA doesn’t hurt either.
Commodities
- The more ebullient mood in markets has knocked gold from yesterday’s highs and it’s back almost $10 from those levels at $1234 this morning. $1228 looks like the level to watch short term. A break would see gold trade below the 4-hour uptrend from the recovery since the $1181/2 lows. Here’s the chart:
- Crude oil has bounced back strongly in the past couple of days with WTI up 1.5% to $53.11 and Brent 1% higher at $55.67. I noted in my morning markets video yesterday that there had been a focus on the gasoline fall the previous night which negated the big build in crude inventories. That continued last night with traders suggesting that shows an underlying strength in demand. Iran’s sabre rattling can’t have hurt either.
- In the grand scheme of things however oil is currently going nowhere. It still has a massive overhang of longs and the support of OPEC’s cuts giving it a top and bottom side of the $5 dollar range I’ve chatting about - $50.50/$55.50 roughly – A break would be huge. But a break has to come first otherwise sideways trade continues.
- Copper is down a little from yesterday’s highs at $2.66. That’s even though the strike has reportedly begun at the world’s biggest copper mine – Chile’s Escondida - and news Rio Tinto Ltd (AX:RIO) is looking to exit its share in Freeport McMoran’s troubled Indonesian mine. Technically copper failed to break back inside the recent uptrend the night before last. But overall it’s in a broad range. But supply disruptions make this a very interesting outlook.
Today's key data and events (all times AEDT)
- Australia - Investment Lending for Homes (Dec), Home Loans (Dec), RBA Monetary Policy Statement (11.30am)
- New Zealand - Nil
- China - M2 Money Supply (YoY) (Jan) (n/a); New Loans (Jan) (n/a)
- Japan - Tertiary Industry Index (MoM) (Dec) (3.30pm)
- Germany - Harmonised Index of Consumer Prices (YoY) (Jan), Harmonised Index of Consumer Prices (MoM) (Jan), Consumer Price Index (YoY) (Jan), Consumer Price Index (MoM) (Jan) (6pm)
- EU - EU Extraordinary Economic Summit (5pm)
- UK - RICS Housing Price Balance (Jan) (11.01am); Industrial Production (MoM) (Dec), Manufacturing Production (MoM) (Dec), Industrial Production (YoY) (Dec), Manufacturing Production (YoY) (Dec), Total Trade Balance (Dec), Goods Trade Balance (Dec), Trade Balance; non-EU (Dec) (8.30pm)
- Canada - Participation rate (Jan), Net Change in Employment (Jan), Unemployment Rate (Jan) (12.30am)
- US - Import Price Index (MoM) (Jan), Import Price Index (YoY) (Jan), Export Price Index (MoM) (Jan), Export Price Index (YoY) (Jan) (12.30am); Michigan Consumer Sentiment Index (Feb) (2am); Baker Hughes US Oil Rig Count (5am)
Have a great day's trading.