Originally published by AxiTrader
Market Summary
US stocks are lower this morning with falls of between a third and a half a per cent in the big three indexes as US bonds rally and there is a real sense of “risk off” in markets. Gold is now trading at $1281, the CBOE Volatility Index is up again, and base metals are under pressure across the board.
It means the ASX might finally pay attention to what is going on around it with SPI traders marking prices down 26 points, 0.44%, lower after yesterday’s 5 point rally.
On the political front the meeting between Russia and the US Secretary of State overnight couldn’t really be characterised as having released tensions. If you see the vision the body language is awful and Russian president Putin said that trust between the two nations had diminished. The nation then vetoed a UN Security Council vote on the chemical attack.
But the big market news of the night is that president Trump – in an interview with the Wall Street Journal – simultaneously said the US dollar is too strong, that he likes low rates, and that China is not a currency manipulator.
Naturally the impact has been some big reactions on forex and interest rate markets.
The US dollar fell out of bed very quickly with the euro surging to the high 1.06’s, the yen driving USD/JPY down toward 109, sterling continuing its rally, and even the Australian dollar bouncing.
Crude is lower even though EIA data showed a fall in inventories last week while copper has collapsed more than 2% amid a broad base metal sell off.
It might be Easter but traders won’t be able to head to the beach just yet with the release of Australia’s jobs data today at 11.30am before we get the release of Chinese trade data and then tonight we get the release of some big US banks’ earnings reports.
What You Need To Know (with a little more detail and a few charts)
- S&P 500 -9 (0.38%) 23447.33 Sydney)
- Dow Jones Industrial Average -59 (0.29%) 20591
- Nasdaq 100 -31 (0.52%) 5,836
- SPI 200 -31 (0.52%) 5,896
- AUD/USD 0.7528 -0.37%
- Gold $1286 0.94%
- WTI Oil $52.80 -1.09%
International
- The US dollar! The 5 minute chart of the euro says it all.
- What’s behind the move was the Wall Street Journal article of an interview with president Trump. He said:
- On the dollar - "I think our dollar is getting too strong, and partially that's my fault because people have confidence in me. But that's hurting -- that will hurt ultimately," he added. "Look, there's some very good things about a strong dollar, but usually speaking the best thing about it is that it sounds good."
He added "It's very, very hard to compete when you have a strong dollar and other countries are devaluing their currency."
- But he’s not calling anyone a currency manipulator – on China, "They're not currency manipulators,"
- On interest rates, who knew the president was a dove - "I do like a low-interest rate policy, I must be honest with you,"
- And he now likes the US ExIm, Export Import, Bank
- What’s important here folks, and worth noting for investors and traders, is that the president has shown a willingness to change previously strongly held and articulated positions when he has been convinced – or informed – of the reality. It some quarter president trump is seen as not doing anything right but he is learning fast on the job and I sense an increased effectiveness and willingness to look at issues with fresh eyes.
- That’s important because it means that whatever the delay with tax and infrastructure he’s likely to eventually get the job done.
- Elsewhere
- BoC governor Poloz is following the current central bank playbook saying that it’s too early to bank the improvement in economic conditions and that rates need to stay where they are in Canada. That’s entirely appropriate. And if you think about the Fed and their path so far they only raised rates twice over two years before becoming more certain the recovery had taken hold and was sufficiently strong that it has to raise rates.
- And speaking of the Fed, Dallas Fed president Kaplan said his “baseline” case for rates in the US is three hikes this year. He also joined the growing chorus of Fed speakers sending a clear signal that balance sheet reduction will begin at the fed this year.
- On the geopolitical front as I noted above it was a frosty meeting in Moscow between Rex Tillerson and Sergei Lavrov - truly awful body language. Separately president Putin said “one could say that the level of trust on a working level, especially on the military level, has not improved but has rather deteriorated”. Hardly surprising. But at least they are talking even if they aren’t the best of friends.
- That said the tension was palpable in Sergei Lavrov’s comments. But it was one of his minions who showed the void that has opened up between the two super powers. Reuters reports Deputy Foreign Minister Sergei Ryabkov told Russia's state-owned RIA news agency said "in general, primitiveness and loutishness are very characteristic of the current rhetoric coming out of Washington. We'll hope that this doesn't become the substance of American policy,".
Australia
- Jobs Jobs Jobs. That’s the key for the day today with the market looking for a rise of 20,000 and an unemployment rate of 5.9%.
- But before that the ASX has to navigate the weak lead from Wall Street and its own extraordinary, and I’d argue out of cycle, rally in local stocks. The SPI 200 is down 29 points at 5898 this morning.
- Yesterday’s price action was a hint of what happened overnight with the S&P/ASX 200 trading an inside day and looking toppish to me. Futures imply a move back toward 5900 this morning while my system suggests 5844.
Forex
- I've discussed the US dollar above but it's worth revisiting the question of whether or not president Trump's jamboning of the US dollar will prove ephemeral or sticky.
- I guess the first thing to note is that I believe on of the things constraining the US dollars rally this year has been traders fear that the president would prefer a weaker dollar. This morning's comments reinforce that notion and highlight that the dollar is going to be a primary focus - especially because of the impact of trade. So for the immediate term likely put a floor under Euro, Sterling, and so many other currencies.
- But in the end it's going to be about economics and central bank policy divergence. Which is why Trump's comments were genius. He hit the US dollar twice. Once with his comment on its value and the other with the interest rate comment. That impacts notions of divergence.
- That said Fed chair Yellen this week spoke directly against political interference at the Fed and the use of mechanical rate setting rules. So I doubt that either her or her colleagues will be dissuaded from the path they have set themselves on US rates
- But for the moment USD/JPY is biased toward 107.80/90, Euro is likely to try the 1.0725 region, Sterling back above 1.26 and the Aussie toward that 0.7550 level I wrote about yesterday.
Commodities
- Oil is lower this morning even though the EIA data showed a draw. For me that’s likely a result of the steepness of the recent rally/ Just take a look at the slope of the price appreciation over the past two weeks from the $47 low. Those types of moves – in the price of any asset – usually end up with a reversal of some kind.
- WTI is down 0.94% at $52.90 as a result. Brent is down 1.01% at $55.66.
- Gold’s bid was reinforced this morning by the president’s comments on the value of the US dollar. As I highlighted earlier this week gold has important overhead resistance around $1285/90. A break higher would be important LT.
- Copper hit my first technical target with the plunge to $2.54 a pound overnight. As I’ve highlighted in my videos lately $2.45 is not out of the question.
Have a great day's trading.