Trump Be Damned! Traders Are Buying

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Quick Recap

Janet Yellen's address to the to the Commonwealth Club of California fundamentally changed the overall recap of last nigh'ts trade by ignited the flame which was already burning under the US dollar for most of the past 24 hours.

The pound was already giving back a third of the previous day’s gains as traders took profits and the US dollar found a more general bid across forex markets. But Yellen accelerated that move and the USD Index is up almost 100 points from the lows of the past 24 hours. Bonds are also higher in the US with the 10 year about 10 points higher at 2.42% on a combination of Yellen and US inflation which rose to a two and a half year high of 2.1% beating expectations for December.

Gold is down $12 an ounce, oil is more than 2% lower, and USDJPY is back above 114 while the Aussie dollar is back near 75 cents.

What You Need To Know

International

• US stocks were marginally weaker but finished in the black after Janet Yellen's speech this morning. It seems like stock traders heard a different speech to the one which riled bond and currency markets. Perhaps it was the fact that even though rates are rising Yellen isn't in a hurry? Or perhaps it is that she was fairly upbeat on the economy and once you throw in Trumponomics the outlook brightens economically even further.
• So at the close the S&P is 4 points higher to 2271, the Nasdaq is up 0.3%, but the Dow is down 0.11%.
• Anyway I've done a quick special report on Yellen and the US dollar here. But suffice to say that Yellen said the economy is near full employment and rates need to rise for the next few years. That in itself reinforces policy divergence across the globe which is something that Yellen noted had driven the US dollar higher.
• But she also made the point I make often about the impact of the dollar on net exports. Thatis Yellen highlighted how the stronger dollar was subtracting from growth in the US over recent years. The corollary of which is that the even stronger dollar over the past few months will be a drag on growth going forward.
• It is as I often write the way that a strong US economy leaks growth into the broader global economy. It's a good thing for the globe naturally. But it's also something Donald Trump is likely to continue to resist.

• Speaking of Trump, his nominee for Commerce secretary - Wilbur Ross, said at his confirmation hearing overnight that overhauling NAFTA is the administration’s first priority. In particular, there is going to be a focus on so-called country of origin provisions which allow for the tariff-free movement of goods and product between Canada, the USA, and Mexico.
• Ross also joined the chorus of Trump nominees calling out China. He said China was the “most protectionist” country of the big economies. He added China “talk much more about free trade than they actually practice. We would like levelize that playing field and bring the realities a bit closer to the rhetoric”. Yes, Reuters reported he said “levelize”. I’ma gonna keep some gold in my portfolio I think.

• The base effect is starting to kick in for US inflation as energy prices move higher. That’s taken US headline inflation up to 2.1% after the December CPI was up 0.3%. While the data is as expected by the pundits it does reinforce the message we have been hearing from Fed officials lately about the status of the US economy even before the addition of Trumponomics. So it shouldn’t be a surprise that US 10 year bonds rose 6 basis points to 2.38% overnight

• Other inflation data out last night was more benign. German CPI printed 1.7% yoy, while EU wide was 0.9% yoy in December

• The UK High Court said it will give its ruling on the Brexit trigger case next Tuesday. You’ll recall that this is the ruling that could mean UK prime minister May must seek parliamentary approval BEFORE she triggers Article 50. That’s different to the notion that once a deal is negotiated she would have both Houses vote on it. This could be another trigger point for Sterling and the FTSE.
• Speaking of Brexit there was some soothing chatter from Europe with German Chncellor Angela Merkel saying the EU must not be divided by Brexit talks. That’s a clear message to the more junior members of the bloc to shut up and let her take the lead I reckon. But the Slovak prime minister must have missed the memo saying that the result of Brexit must not be a stronger Britain and weaker EU. At least the Italian PM was a bit more conciliatory though saying that the best approach is solidarity and friendship.
• This deal is going to take ages as the Swedish PM highlighted last night noting 2 years may not be enough. If you can imagine the problems of getting something this complex through the Australian Senate chamber you might have a chance to see just how difficult the negotiations will be.

• Turkey isn’t mucking around – it’s announced plans to issue more bonds overnight.

• And something for the China bears. Bloomberg reports that the governor of China's Liaoning province fabricated fiscal numbers from 2011 to 2014. Bloomberg reported:

City and county governments in the northwestern region committed fiscal data fraud in the period, Governor Chen Qiufa said at a meeting with provincial lawmakers Tuesday, according to state-run People’s Daily. Fiscal revenues were inflated by at least 20 percent, and some other economic data were also false, the paper said, without specifying categories.

Chen said the data were made up because officials wanted to advance their careers. The fraud misled the central government’s judgment of Liaoning’s economic status, he said, citing a report from the National Audit Office in 2016.

• Also - just a note for readers. Keep an eye on everything Anthony Scaramucci says about the incoming administration's economic and trade plans. Scaramucci, who just sold his Skybridge Capital so he can join the Administration as a special adviser to Donald Trump. is truly the considered voice of Trumponomics. Yesterday's clarification of goals at Davos was a case in point.
• Here's a link to two WSJ stories:

  • In Davos, Anthony Scaramucci Translates Trump Message to Global Elite

  • Donald Trump Adviser Anthony Scaramucci Says U.S. Economy Can Withstand Rising Dollar

Australia

• A twenty odd point loss wasn’t too bad really all things considered yesterday on the ASX 200. The close at 5678 was around 20 points off the low for the day and importantly above a Fibonacci level of support at 5660/65.
• Financials and basic materials stocks in the US are having a better day which could help the local market when it opens today. Futures traders on the ASX have marked the March futures contract down another 12 points before Janet Yellen but the MArch contract is now up 8 points at 5637.
• Technically the SPI still looks terrible on a medium term basis. But I’m watching the 5660/65 level in the physical today to see whether there is a further move lower afoot. And on the SPI itself a break back above 5640/45 could turn the outlook more positive once again.

• Australia issued $9.3 billion in 2021 bonds yesterday. That’s its biggest single debt issue of debt in one tranche. The price of 2.24% is a pretty good deal for the government all things considered and reflects good participation even with chatter about the AAA rating’s sustainability recently.
• Consumer confidence in Australia was on the disappointing side based on the WBC-MI data released yesterday. The print of 97.4 was up 0.1 registering the first rise in 3 months. If you’re the type who likes to draw trendline on charts we might be able to argue that we just averted a breakdown in sentiment.

• No doubt today’s employment data is going to be important for consumers and the market. After last month’s unexpectedly strong 39100 rise in employment the market is expecting a more benign increase of 10000 jobs created in December. As usual traders will be watching the part-time/full-time split while the unemployment rate is expected to print 5.7% again.

Forex

• After trading below 1.20 and above 1.24 in the first two days of the week it’s no surprise that Sterling gave back a chunk of its gains over the past 24 hours. But the fact that it has held above the break of the one month down trend is an important one for the GBP bulls.

• Elsewhere the US dollar was already stronger across the board even before Yellen started speaking. Certainly inflation data and an increase in bond rates didn’t hurt. But the reality is that the US dollar was already rallying from the moment the market turned from Tuesday to Wednesday at 5pm New York/9am Sydney yesterday. That was essentially the weakest level of the US dollar which recovered from that point with the USD Index back at 100.89 this morning before Yellen spoke. It's currently sitting at 101.27. That is a clear rejection of the important psychological level of 100 I’ve been watching and writing about.

• So this morning the Aussie is down 0.7% at 0.7512, Euro has lost around the same amount at 1.0634 while the Kiwi is a little worse for wear at 0.7134 with a 1.1% loss. The Canadian dollar has been hammered along with Oil’s fall and the BoC leaving rates on hold with USDCAD now up 1.67% to 1.3260.
• Reflecting the overall recovery in the US dollar the Japanese Yen is also on the back foot losing dioubling its loss after Yellen started speaking to around 1.6% on the day. USDJPY is now sitting at 114.42. The 4 hour charts don't have any reall resistance for another 100 points as you can see on the chart below.

Commodities

• Gold has had a pretty solid night holding firm and sits around $1212 until Yellen started speaking. It's lost $8 an ounce since then as the US dollar has surged and even though that is still a reasonable result it's under a little pressure. What's interesting is the battle between the natural weight of the US dollars rise and the clear signal that gold has caught a bid on a a more sober judgment of what a Trump presidency might look like and the recognition of heightened uncertainty given the president-elects aggressive policy stance and proclivity for Tweeting.
• Technically though gold needs to hold above the $1197/1200 region to retain it’s upward bias. In my 6.15am report I wrote "there is some signs a pullback may be looming". That risk has been heightened by the subsequent price move in the past few hours.
• OPEC said in its latest monthly report that it sees a smaller glut across the course of 2017. The report said “A continued normalisation of monetary policies, indicating improving economic conditions, together with the recent historic cooperation between OPEC and non-OPEC producers, should help to bring needed stability to the oil market,". The report also showed a fall in OPEC production during December with the Saudis doing some heavy lifting.
• But that didn’t help crude oil prices which are around 2% both in Nymex and Brent crude terms. It seems that’s because traders are focussed on OPEC’s comment that US oil output “is forecast to grow”.
• Technically the price is close to breaking down when I look at the second contract (it’s roll day for Nymex crude on the 20th) which is already reflected in our MT4 CFD. The level to watch is $51.70.

• Copper is largely calm at $2.60 amid a mixed 24 hours for base metals.

Today's key data and events (all times AEDT)

• Australia - Consumer Inflation Expectation (Jan) 911am); Part-time employment (Dec), Fulltime employment (Dec), Employment Change s.a. (Dec), Participation Rate (Dec), Unemployment Rate s.a. (Dec) (11.30am)
• New Zealand - Business NZ PMI (Jan) (8.30am); Consumer Price Index (YoY) (Q4), Consumer Price Index (QoQ) (Q4) (8.45am)
• China - House Price Index (Dec) (n/a)
• Japan - Nil
• Germany - Nil
• EU - Current Account n.s.a (Nov), Current Account s.a (Nov) (8pm); ECB Interest Rate Decision (Jan 19), ECB deposit rate decision (Jan 19) (11.45pm); ECB Monetary policy statement and press conference (12.30am)
• UK - Nil
• Canada - Manufacturing Shipments (MoM) (Nov), Foreign portfolio investment in Canadian securities (Nov), Canadian portfolio investment in foreign securities (Nov) (12.30am)
• US - API Weekly Crude Oil Stock (8.30am); Building Permits Change (Dec), Housing Starts Change (Dec), Building Permits (MoM) (Dec), Housing Starts (MoM) (Dec), Continuing Jobless Claims (Jan 6), Initial Jobless Claims (Jan 13) (12.30am); Philadelphia Fed Manufacturing Survey (Jan) (12.30am); EIA Natural Gas Storage change (Jan 13) (2.30am); EIA Crude Oil Stocks change (Jan 13) (3am)

Have a great day's trading