Originally published by AxiTrader
Market Summary (Thursday March 29, 7.31 am AEDT)
I’m in a bit of a weird sleep cycle at the moment - 2 am wake ups followed by 8.30pm nodding off.
So I’ve been up watching the US market for hours now as it too’s and fro’s with the competing forces of good pushing stocks back into the green only to find those evil bears (yes I’m being facetious) awaiting them again with luscious sell orders to knock prices back down.
So far the bears have it on the day. But I get a real sense this 200 day moving average in the S&P 500 which comes in at 2,588 and this week’s low just a few points lower at 2,585 are all that stands between the bulls mounting some sort of resistance to what might others morph into a full-blown assault by the bears.
At the close, the S&P 500 finished down 8 points, 0.3%. The Dow is down 0.04%, and the Nasdaq is down again after the selling of the FANGs and other stocks spread with Tesla (NASDAQ:TSLA) and Amazon (NASDAQ:AMZN) – in particular – running into company-specific issues. The Nasdaq 100 is currently down 1.06% to 6,460.
In Europe prices were mixed. The DAX is still feeling the residual effects of last week’s death cross, falling 0.25% to 11,940 while in London the FTSE rose 0.64% and the CAC rose 0.29%.
Here at home SPI traders are a little too optimistic for my liking. They’ve only added 7 points – which is down 11 from a couple of hours ago. But even after yesterday’s fall of 43 points on the local market it still seems a little optimistic. I say that given global miners haven’t had a great night.
On currency markets, there is nothing like a bit month and quarter end, a drift lower in bonds, another reconfirmation of US growth (Q4 GDP upgraded to a +2.9% pace), and a hawkish Fed official talking about rates (Bostic) to kick the US dollar higher.
And that is the theme this morning with the yen down 1.46% (some say a bit of talk about a DPRK Japan summit has helped) and USD/JPY back up at 106.88. The euro is lower as well as the market recognises the fading growth pulse and dovishly leaning ECB as a neat juxtaposition of where the US and the Fed are right now – EUR/USD is at 1.2310, down 0.73%. Sterling is a little lower too, off half a percent at 1.4081 while the commodity bloc is lower in varying degrees.
The kiwi has suffered worst down 0.8% to 0.7210 – watch out if last week’s low gives way. The Aussie is almost ebullient in comparison with a fall of just 0.2% to 0.7661. My discussion of an air pocket yesterday seems to have been overly hyperbolic. And of course the Canadian dollar is also a little lower. But like the Aussie doing rather well US dollar strength and oil weakness considered – USD/CAD is at 1.2922, up 0.3%.
Gold is lower under the weight of the US dollar, down a whopping 1.4% to 1,326. Clearly traders are favouring bonds over gold and the yen as a safe haven in the past two days. Speaking of which the 10-year Treasury is sitting at 2.77%, the 2 is at 2.28% and the curve – as a consequence – has flattened further to 49 points.
Oil is lower this morning after a the EIA inventory data (+1.643 mill Bbls vs -0.287 mill expected) reinforced the previous days API build in crude. That said OPEC was out on the husting doing its best to jawbone prices by reaffirming that the current production cut is morphing into a longer term deal with the Russians and other parties. But, after failing at the recent highs prices are off with WTI and Brent down 1.1% and 0.6% respectively to $64.52 and $69.66 a barrel. Copper is largely unchanged and still below $3 a pound at $2.99 this morning.
It’s another quiet day here in Australia today. That’s particularly the case given that the Easter break looms for markets with traders off till next Tuesday. That’s the case for a large chunk of the west so there are chances that trading could get thin over the next 24 hours across the globe – particularly the back end of that.
We do get German unemployment and inflation as well as UK GDP in Europe. In North America, it is Canadian PPI and GDP as well as the PCE, personal spending data, and Michigan consumer sentiment data in the US.
To all who celebrate it, Happy Easter and to the rest of my readers enjoy the break. I’ll be back Tuesday morning next week.
Oh and don’t forget the clocks change in Australia this weekend. So for those affected that means US stocks will now close at 6am and most of the important US data will be released at 10.30pm in the evening – much more civil.
Here's What I Picked Up (with a little more detail and a few charts)
International
- I’m backfilling here so I’ll quickly pick up on a few highlights.
- The Chinese are still making aggressive noises but the SCMP is also saying they are working with the US so Soy isn’t hit as a retaliation for the tariffs.
- President Trump is apparently furious at Jeff Bezos and Amazon as a job and real estate price destroyer and wants to look at their tax arrangements. But the Whitehouse has said that’s not the plan at the moment.
- “Leadership groups” have been in the news this week with the Australian cricket teams foray into the dark arts of scuffing up a cricket ball illegally. But I want to talk about another important leadership group, the FANGs+. As readers know I’ve had a jaundiced view on the FANGs for a while now and they are certainly under the pump at the moment. But I wanted to highlight a post I saw by Adam Button over at ForexLive which quoted something Dennis Gartman often says about the end of bull markets. Adam writes, Gartman “has a great saying about bull markets. It's something like that a bull market ends when the 'generals' are taken out a shot, leaving the lower ranks confused and routed. The FAANG stocks, and a few others, have undoubtedly been the generals of this rally and they are in big trouble right now”. It’s a similar theme to another post on ZeroHedge over the weekend which is also worth a look. Anyway, here’s Adam’s chart.
- And readers also know I’m worried by the global geopolitical situation. Not just China and the US but Russia too, and obviously the fulcrum that is Syria and the Middle East. Anyway, the Russians did something they haven’t done since the Cold War and flew a “training” flight over the arctic toward North America RIA news agency citing Defence Minister Sergei Shoigu said. Reuters has a little more here.
Australia
- As we head off to Easter and the prospect that next week we’ll actually start to get data flow again and in the knowledge that we’ll hear from the Reserve Bank next Tuesday, the reality is that when it comes to stocks the local market is at the mercy of this current funk in the US. Certainly our own data will matter in time and on any given day it is released. But there are global asset allocation factors at play presently which is questioning the outlook for stocks and the US markets leadership in the FANGs. It would be reasonable to suggest that given Australia missed out on the majority of the FANG induced surge, given the ASX in price terms is still yet to climb back to the record highs of a decade ago, our market should be insulated. And perhaps it will be, at least if the US falls completely out of bed.
- For the moment though, like the US the ASX and SPI, HAVE CLEAR LEVELS THAT MUST HOLD. They are 5,740/42 in the SPI and 5,770/73 for the ASX 200. Here’s the SPI chart.
- The sellers came for the Aussie dollar but it hasn’t hit the air pocket many thought it might have on the break of last week’s lows. Indeed it’s the Kiwi which has had the bigger fall in the past 24 hours. That’s a reflection of Kiwi outperformance lately. But both currencies are vulnerable to a stronger US dollar if that is what we end up with.
- Indeed the Australian dollar is at considerable risk of a big fall if the US dollar does continue to find buyers and the Euro keeps falling then, as I have been writing, all the headwinds for the Aussie - interest rate spreads, commodity moves recently, investor sentiment toward risk and risk assets – will combine with a stronger Greenbacak to drive down toward very important support at 76 cents. That’s the trend line from the 2016 lows and is not too far away now. If it breaks, and it might if the Euro cracks through the bottom of its range (something I’d put at 50:50 right now), then AUD/USD is biased toward 0.7475/80, 0.7328/35 and then 0.7140/50.
Forex
- Is it just month-end flows driving the US dollar? Or is it something else like a recognition that the Euro, and the ECB, need to recalibrate the outlook for the EU. Or, in the case of the ECB, the Hawks need to recognise that as a single mandate central bank with the growth and inflation pulse behind it (CESIEUR -57.2, CESIUS +48.7) talk of rate hikes is far off and even the end to QE may be delayed a little. May being the operative word given it is a truly emergency measure whose time is past.
-
Source: Twitter Screenshot
- If there is a recalibration then the bond spreads every one has ignored will become important again. Already this morning I saw a tweet by Bloomberg surveillance saying PIMCO favours US over UK bonds at these rates and spreads. That’s not likely to be just for the UK, but for Europe, the EU, and other jurisdictions like Australia. So, as I said in my retweet of the above story that is likely to also help the US dollar.
- Now I know it is unfashionable to like the US dollar and to think policy and economic divergence is a thing that matters to forex traders but I am also acutely aware that the reasons the euro bulls have used to sell dollars have morphed and changed in order to justify the move. But those drivers are also pointing lower. Take the EU 2year forward 2-year rate which was fashionable at the end of December. It’s screaming range bottom retest for EUR/USD – if it every really was anything other than two lines put together on a chart.
Commodities
- OPEC continues to make noises about the tie up with Russia morphing into something more permanent. This week, and again overnight, we heard from the Saudis as well as OPEC’s secretary general Mohamed Barkindo who suggested this was an ongoing arrangement. We also heard that OPEC is in no rush to re-evaluate whether or not it should change the current production caps at the June meeting and may wait till later this year.
- That didn’t help prices however which continue to react to the failure to break the range highs earlier this week and the US inventory data. So we are left with WTI still reversing off that important 50% level from the 2014/16 fall which is also the recent peak. And we also have Brent unable to take out the recent high. It’s an interesting long tail for brent on the dailies and it’s worth highlighting that prices found support at the 13 day ema I use in the Double Bolly Band strategy. If it breaks and falls through that things could get ugly.
- And here’s an explainer from Reuters on the Shanghai oil futures contract which includes a quote from yours truly. It has had a volatile introduction to trade this week so far. It should settle down in time. Indeed it must if it is to emerge as a genuine Chinese, Asian, and Yuan benchmark to rival Brent and WTI. It will take time.
Have a great day's trading.