Originally published by AxiTrader
Market Summary (7.33 am Friday April 13 – Ohhh!!!)
President Trump is walking back from the brink on so many fronts its making my head spin.
It’s becoming clear his Tweets are part of an anchoring approach he uses in negotiations and then eases away from to achieve what he wants. It’s working on many fronts and he’s eased back on China and Russia/Syria this week and there was news last night he’s even reconsidering the TPP.
So stocks in the US are higher. But not as much as you might think. The S&P 500 rose 0.82% to close at 2,663 for a good rise but below the 2,674 high which is just a point or so below the resistance level I’ve been eyeing. The Dow is up 1.21% to 24,483 and the Nasdaq 100 rose 1.16% to 6,659.
Now the test comes for this recovery of US stocks off the recent lows. President Trump is sounding more conciliatory, on China, on NAFTA, on Syria, and even on the TPP. And we’ve entered what’s forecast to be an exceptional earnings season of fabulous reports expected to add another 16-18% over Q4 2017’s 14% growth.
The preconditions are there for a run in the S&P to, and through, 2,800 once more. But will we see it?
In Europe the FTSE rose just 0.02%, but the continent had a better day with the DAX up 0.98%, the CAC rose 0.59%, while the FTSE MIB was up 1.27%.
Here at home after a lacklustre day yesterday where the S&P/ASX 200 finished at 5,815, SPI traders are a little more optimistic having marked prices up 14 points this morning. The reality is the ASX’s fortunes will be determined offshore.
On forex markets the US dollar is stronger across most of the board except – interestingly – the Commonwealth bloc of pound, Aussie, kiwi, and Canadian dollar. The latter three are clearly buoyed by the improvement in risk appetite and have been able to withstand the drive of the dollar on this basis. So this morning the Aussie is at 0.7755 largely unchanged, USD/CAD is in a similar position at 1.2587, while the kiwi is UP, yeah I know, at 0.7374 for a quarter percent gain.
On the big currencies it’s hard to figure why the pound did well given recent data. But some say it’s in anticipation of a flurry next week which will lock in a May hike. Brexit I think, with fresh meetings next week. So, GBP/USD is at 1.4229 up 0.4%. Euro is down at 1.2330, -0.3%, after more weak data as Feb industrial production fairly collapsed across the EU (-0.8% mom, 2.9% yoy). ECB minutes also reflected some concerns about the euro’s level. The yen and Swissie are also a little weaker as risk aversion dissipates. Both have lost around 0.45% to 107.25 and 0.9621 respectively.
On bond markets the curve is a point steeper at 48 as the 2's rise a little to 2.35% and the 10's are back at 2.83%.
On commodity markets stocks and US dollar higher has slapped gold back to the middle of the range. It was an awful failure at the range top Wednesday and it’s back at $1335 this morning off about $15 an ounce. Copper is down 1.7% suggesting to me the Aussie has about 40 points of catch up possible today. And oil is higher again looking good for an end of week close above the recent range tops. WTI is up 0.45% to $67.12 while Brent is up a smidge to $72.11.
On the day the big news at home is the Financial Stability review from the RBA. This wouldn’t usually be considered a market mover. But I’ll be looking to see if they’ve done any modelling on household stress and debt.
But the big news globally is the release of Chinese trade data today around 1pm my time. What will it tell us about global growth? German inflation is out tonight along with JOLTS and Michigan consumer sentiment in the US.
Overuse of the word On, for paragraph entry - apologies. But have a good weekend anyway.
Here's What I Picked Up (with a little more detail and a few charts)
International
- Remarkable. That’s the only thing I can really say in the past 36 hours or so about the change in tone that seems to be emanating from the President and the White House. On Syria it’s pretty clear that DefSec Mattis has had a word in the ear of the president about Syria and the kind of response that is both necessary and measured. Speaking to the House Armed Services Committee the 4 Star Marine General said, “we are trying to stop the murder of innocent people. But at a strategic level, it’s how do we keep this from escalating out of control – if you get my drift on that”. Russia is clearly his drift and thank goodness he has the ear of the President. Let’s hope whatever the response is Mattis can keep any fallout contained.
- Also remarkable is the shift on trade. Well if you look at it strategically its not really a shift at all it’s a de-escalation between the US and China because the latter seems to think the time is not right to fight and recognises that its economy can open up now. How the WTO still designates China as “developing” when it’s middle income I don’t know. Anyway the Chinese Commerce Ministry was being quite bellicose yesterday but given President Xi was not it’s had little reaction. More interesting is the news a NAFTA deal could be coming soon and that the President is taking a fresh look at the TPP. Which gets me back to Strategy. The Administration will continue to prosecute its bilateral argument against China but it seems it’s figured out an equally good way to ensure the longevity of US pre-eminence is to re-enter TPP and counter Chinese measures that way. And TPP helps US farmers angry at him over China. We’ll see what happens. It’s all part of the long term battle between the two nations for primacy.
- So why the heck can’t the S&P 500 break up and through resistance at 2,675? That’s a question I’m asking myself this morning. Especially given that earnings are expected to be so great. The set up is there folks it really is. Here’s the chart.
- The big question is whether the expectation of a super earnings season is already baked into the cake. I’d suggest it has to be. Doesn’t it? It’s not like this hasn’t been telegraphed from a mile back. But CNBC reports JP Morgan reckons that the market is underestimating how powerful this pulse is actually going to be. They see a 21% increase in earnings. “We believe the consensus growth does not include the positive impact of rising disposable income (i.e., tax savings, wage increases, one-time bonus), lower household expenses (e.g., utility bills and declining cost for goods/services from industries that have lower pricing power), and rising consumer confidence,” the bank says.
- But other wonder how the heck we can get 18% after Q4’s 14% growth let alone JPM’s 21%. Myself I wonder if the positive expectations isn’t already baked into the cake. Isn’t that what drove prices to the January records for stocks? It’s going to be an interesting couple of weeks. Charts suggest a topside. But if it doesn’t happen it will be a powerful message. I’m not getting the full on bear coat out unless 2,530 breaks for the S&P 500 though.
Australia
- The Australian dollar has be calm over the past day as the competing forces of a stronger dollar appear to be more than balanced by the coincident increase in risk sentiment that has resulted from this week’s apparent de-escalation of trade tensions and associated lift in stocks and bond rates. So we are here again in the mid-77 cent region which has been so much of an attraction point over recent years. If things settle down on trade and Syria that would be a very positive sign for the Aussie dollar as it would take away a big negative in terms of worries about sentiment and growth. But the reality is that love for the US as a big part of the global growth pulse – at least in terms of surprise data – seems to have passed. So again we get a countervailing force. And then there’s the US dollar as it tries to rise off the mat. It all conspires to a range.
- On the day if copper prices stay weak my sense is the Aussie could drift a little lower. But overall we are simply ratcheting within a 0.7640/0.7820 range.
- On stocks here at home we made a marginally lower low on the SPI from the previous day yesterday but have recovered for an up day with SPI traders now factoring in an 18 point gain on the ASX 200 when it opens today. Just as support was 30 points below market yesterday so today the key resistance level to break is about 40 points above where we are now at 5815. So it looks like the ASX and SPI will ratchet around today as they await US markets reaction to JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC), and Citigroup (NYSE:C) earnings in the US tonight. Here’s the SPI chart – you can see the risk of the recent rally clearly:
Forex
- Someone needs to tell the ECB governing Council members that their words on rates are actually helping keep the euro buoyant. I say that because even as the minutes to the last meeting (released overnight) revealed some concerns about the euro’s rise Benoit Coeure was thinking out loud about how Europe’s central bank can still support the economy even with higher rates. Sure it was an academic discussion, but gee whiz. He’s lucky – or not actually – that the EU’s February industrial production data stank so badly so as to not drive the euro higher. Anyway, it’s just another indication that EU growth is spluttering. And while the bulls out there are even more Panglossian than me at times – saying that because the data has collapsed so spectacularly in the EU it’s a bullish sign – no seriously I read that as an excuse to buy European equities yesterday – the reality is that the EU growth pulse isn’t dead but forecasters have clear ly got ahead of themselves.
- In terms of price action EUR/USD is still stuck in a range. And unless or until that breaks my trading approach is to trade it. But my rhetorical self wants to give the euro a belting in the expectation its going under 1.20 at a minimum.
- The trouble I have is that some Elliott Wavicians I respect who still think the US dollar has a little further downside to head fake us all out – Before the US dollar starts to rally again. Levels like US Dollar Index 96 or thereabouts is where they think the dollar might bottom out before roaring higher. The ting is though that the current range in euro doesn’t rule that out – whatever my rhetorical self might think. Trade the range until it breaks they say.
Commodities
- Geopolitics and OPEC talking bullishly in its monthly report helped oil prices remain firm overnight even though other markets like gold, stocks, and bonds reacted to an apparent reduction in fears about a negative outcome Syria. The fact the Saudi’s and Qataris were able to get some big bond issues away this week along with the moves in gold and stocks suggests that maybe the oil bid may be over egging geopolitics a little. We’ll see.
- From a price action point of view the key for me is where both Brent and WTI end the week. If they close above $71.25 and $66.35 respectively then I’ll be looking for a big rally of between $8 to $10 from those levels in time. Here’s the Brent chart – you can see where support was last night. That’s a good sign for the bulls.
Have a great day's trading.