Originally published by AxiTrader
Market Summary
It’s all about president Trump this morning. Or more correctly about what he may or may not have said to former FBI director James Comey about the Bureau’s investigation into former NSA Flynn.
The result is a flight to safety with the Japanese yen (USD/JPY 110.98, -1.9%), Swiss franc (USD/CHF 0.9783, -0.75), Gold ($1,259 +1.9%), and bonds (10’s 2.22, -8pts) all catching a strong bid since revelations that Comey has detailed notes on discussions with the president.
Stocks are lower as a result with the Dow Jones Industrial Average and S&P 500 off around 1.8% to 2357 and 20,606 respectively. The Nasdaq 100 is off more than 2.5% at 6,011 and stocks in Europe – save the UK – were all off sharply as well. And naturally the CBOE Volatility Index is through the roof with the one month measure up 46% to 15.59 while the 3 month measure (CBOE S&P500 3-M Volitlity) is up 23.3% to 15.06.
On forex markets one of the interesting things about this latest revelations is that where the recent US dollar weakness lifted all boats the last 24 hours has been more specific to the safe haven trades. So the Aussie (0.7429) continues to lag. The euro is up another 1.1150 looking strong while sterling (GBP/USD 1.2959) is strong but itself lagging as are EM currencies this morning save for the Singapore dollar.
Commodity markets are interesting. Yesterday’s Chinese iron ore and base metal spike mostly persisted overnight although US copper dipped a bit to $2.54. Oil is up again (WTI +0.8% to $49.05) after the EIA data showed another draw in crude over the past week.
Today we get Australian employment data.
Here's What I Picked Up (with a little more detail and a few charts)
- S&P 500 -43 (0.1.8%) 2357 (7.17 Sydney - change since previous day)
- Dow -372 (1.78%) 20606
- Nasdaq -158 (2.57%) 6,011
- SPI 200 -62 (1.07%) 5,720
- AUDUSD 0.7429 (+0.10%)
- Gold $1260 (+1.94%)
- WTI Oil $48.96 (+0.62%)
International
- Be careful what you wish for. That’s no doubt what many who were lamenting the lack of volatility are thinking right now after the last 24 hours ruction. We’ve seen the VIX spike sharply as stocks came under pressure. Two things are worth noting here. First the VIX is a coincident indicator so it is utterly useless at telling us anything except what is actually going on. No predictive power. But the second point – one Benoit Mandlebrot made in his work – is volatility begets volatility. It’s sticky. So until this latest threat to the whole Trumponomics, Trumpflation agenda is resolved there’s every chance that stocks continue to fall.
- And the key level for the S&P 500 is now last night’s low at 2360. It’s the bottom of the current wedge and roughly the closing level of the S&P 500 this morning. In the matchout the actually closing level seems to have slipped to 2357…a break. As I have been writing recently and saying in my videos my system is short.
- So with former FBI director Comey addressing a congressional committee on the 24th we may have a few days of uncertainty to go yet. But President Trump is just blasting through. If diverted from his script at a Coast Guard commencement speech overnight saying “No politician in history, and I say this with great surety, has been treated worse or more unfairly” by the media.
- Good old Vlad. While multiple press outlets confirming – but not sighting – the Comey memo the pressure on the president has intensified. But in the associated mess the Russian President is unhelpfully offering to prove that President Trump didn’t pass on any sensitive data at the Whitehouse meeting. In doing so he is underlining once again that Russia seems to want President Trump in the Whitehouse. It simply reinforces to the conspiracy theorists their fears while to those who are predisposed to give the administration the benefit of the doubt it highlights the need to get to the bottom of the Russia questions and allegations. If for no other reason than to move on.
- So we saw the first cracks in the wall of Republicans surrounding and protecting the President last night. Naturally the Democrats are raging about the Russia and Comey concerns but Alaskan senator Lisa Murkowski was the first GOP to join the chorus of concern. “The American people deserve to know the truth…it may be that we need to look to an independent commission or special prosecutor,” she said. Freedom caucus member Representative Justin Amash also seemed to he’s wavering. He said he has “confidence in director Comey” and if the “allegations are true” then they are grounds for impeachment.
- The key here is that the discussion is around a potential obstruction of justice. That changes the game a little. Impeaching Donald Trump was a pipe dream of the Democrats but extremely unlikely to most other observers until a few days ago. Now it seems to be an increasing chance. Whether it would succeed is another story. But as it drags on it hurts sentiment and as I have written often recently threatens the administration's agenda – especially around tax and infrastructure.
Elsewhere
- The US overnight extended the sanctions relief granted by the Obama administration for Iran. Coming a couple of days before the increasingly acrimonious presidential election that’s good news. But the president is still due to head to Saudi Arabia this week which won’t help the incumbent president Hassan Rouhani fight off the hardliners.
- We got two clear signals from the ECB last night. Benoit Coeure, a member of the ECB’s executive board, said over night exiting unconventional policy (so we know the ECB is thinking about this again) could disrupt markets. As a result the bank needs “clear and time consistent communication” to avoid that. So the ECB is thinking about the taper and how it will communicate it. It’s coming folks and that’s good for the euro.
- On that front German Deputy Finance Minister Jens Spahn said overnight that the ECB needs to end unconventional policy. “Unless monetary policy starts normalizing soon, negative side-effects will become more damaging,” he said adding “Regarding the euro zone, the ECB should be ready to exit the unconventional monetary policy not too late”
Australia
- It’s going to be another awful day’s trade on the S&P/ASX 200 today with SPI traders marking prices down another 62 points. That projects another fall of 1% after yesterday’s fall of 64.5 points and close at 5786.
- The technical are awful for the ASX. We had a break of the trendline from the start of the Trumponomics rally on election night (our day) last November recently and the market could not get back above that line over a few days of volatile trade. Prices have now taken out the trendline from the January low and 5680/5700 is now support before what looks like the actual target in the 5580/561010 region comes into play.
- What a day for Australia’s job data to be released. I remain hopeful that the NAB business survey is providing a good lead for solid growth but the Reuters survey says the average market expectation is for an increase of just 5,000 jobs. Traders will pay attention to what happens in the FT/PT split. But remember the RBA minutes said forget about that. A job’s a job.
Forex
- The Trump bump, as many call it, is over for the US dollar which is under intense pressure. It has now broken the uptrend line from the start of the dollar rally in 2014 and looks biased susbstantially lower.
- And that’s why we have the Euro higher this morning. Money was already flowing toward Europe – in record amounts into stock funds last week – before this latest revelation. The result – as I wrote in my Euro specific piece yesterday – is that EUR/USD is headed toward 1.13 perhaps 1.1450. We’ll see how this all plays out politically and what impact it has on the Fed. But it’s worth wondering if we are seeing a trend change in the euro and this US dollar. Certainly the weak data I’ve been referencing for ages suggests so.
- Elsewhere the collapse of USD/JPY has been vicious in the extreme. It’s not without precedent because this is what forex traders do when uncertainty increases. 109.50/90 is in the frame now.
- The Aussie is lagging along with other commodity currencies and the emerging markets which had hitherto been doing well. That’s because this is a risk off move and these currencies almost never do well in such an environment. So while stocks are under pressure and prices pointing lower its unlikely the Aussie or many others in this group can sustainably push higher even in a weaker US dollar environment.
Commodities
- The EIA reported a lower than expected draw of US oil inventories overnight. At -1.753 million barrels the fall in stockpiles under shot the expectation of a 2.36 million draw. But news in gasoline and refinery moves helped give the bulls some succour as they pointed to the kind of demand which can continue to support these crucial draws in inventories OPEC is aiming at and the market needs to see to keep prices from collapsing.
- Gold does well when risk goes off and uncertainty goes from radical to irreducible. So we see it higher this morning at $1259 an ounce up $23.56 over this time yesterday. My system is long and pointing higher. Target $1278 then $1295. If it can get through that upper level it could really run. Especially if its at month ned because it will be a break of the long term downtrend.
- Copper is slightly becalmed – sitting in a culvert while traders have bigger fish to fry. It’s off marginally at $2.54 in what has been an overall positive 24 hours for iron ore and base metlas.
Have a great day's trading.