Originally published by AxiTrader
Quick Recap
The Dow retained 20,000 Friday in what was a fairly flat day after US GDP growth missed but had strong internals.
Chat this morning is bound to be dominated by the global backlash to Donald Trump’s executive order banning travel by nationals of some predominately Muslim nations and any potential impact this could have in markets.
Already the US dollar has lost a tiny bit in forex market this morning. But it’s only early.
Looking ahead it’s a big week of central bank meetings and data.
What You Need To Know
International
- European stocks were lower Friday and US stocks were flat to marginally down to end the week. The Dow lost just 7 points to 20,093, the S&P 500 dipped 2 to 2294 and the Nasdaq 100 gained 5 points to 5661. The broader Russell 2000 lost 0.36% to 1370.
- US 10 year bonds dipped a couple of points to 2.48% while the dollar was a little stronger with the US Dollar Index at 100.56.
- European stocks were lower Friday and US stocks were flat to marginally down to end the week. The Dow lost just 7 points to 20,093, the S&P 500 dipped 2 to 2294 and the Nasdaq gained 5 points to 5661. The broader Russell 2000 (AX:IRU) lost 0.36% to 1370.
- US fourth quarter GDP missed to the downside Friday with a print of just 1.9%. But that miss masked underlying strength in the economy. That is net exports – the trade gap – subtracted 1.9% from the overall number. That’s exactly as I’ve been writing for a while now. A strong dollar leaks US growth out into the rest of the global economy and in doing so the US economic growth engine becomes the tide that lifts other economy’s growth rates. That’s a good thing.
- Also good was the strength showed by private domestic demand in the fourth quarter. Friday’s data showed it rose 2.8% while at the same time investment from business was higher as well as the oil industry surged back on the back of higher prices. Inventories surged as well adding 1% to GDP.
- US growth for 2016 was only 1.6% in the end. That’s the worst result since 2011. But there are signs that underlying momentum has materially lifted as I noted above. So in the words of legendary Rugby League legend Jack Gibson the verdict overall on US growth has to be “played good, done fine”.
- Also out Friday night was the latest Baker Hughes rig count which showed an additional 29 oil rigs were added.
- Here's and interesting stat - if the Dow was still made up of the same companies that were its constituents in 2004 it would be nowhere near 20,000. You can see that in a Tweet I picked up from Sam Ro. It's why I focus on the S&P 500 and why many are saying that "Dow 20,000" is meaningless. Of course, it is and it isn't - anyway here's the chart.
TRUMP
- This is not a political blog. It is a written down version of the kind of market recap I’ve been doing since I started in markets back in April 1988. In that sense it’s just an overnight wrap of what I reckon are the highlights myself, traders, and investors need to take account of in the day, days and weeks ahead.
- But over the past year or so, and certainly with Donald Trump in the White House and so many important European elections in 2017, plus the Brexit negotiations, politics is as important to the day to day ebb and flow of markets as economic releases. That’s especially the case with POTUS also being the Tweeter in Chief these days.
- I raise this today because for all the Executives orders and the bluster and showmanship of Donald Trump’s first week in office it looks like he might already be learning the limits of his power. The Mexican president pushed back canceling their meeting after Trump said don’t come if you won’t pay for the wall and then Friday they had a conciliatory phone call which POTUS said was “very, very friendly, “(the Mexican peso continued to be bid as a result strengthening 3% over the week). Trump also said he last week he favoured torture as an interrogation technique. But then stepped back Friday when he told reporters he’d given Defence Secretary retired 4-star Marine General Mattis the power to overrule him on that.
- And of course the ban on citizens from a number of countries entering the US (which only includes 7 countries but notably not Saudi Arabia where most of the 9/11 hijackers came from) has brought intervention by a New York judge, protests and chaos at airports and swift rebukes from business leaders across the US, European governments – including Germany and the UK – the Democrats, and the Mormon Church. Anyway, there has been a lot back-peddling, and denial of any chaos at airports from the administration.
- Why am I writing all this? Because Trump is the very personification of the Donald Rumsfeld quote I highlighted last week. In summary known knowns, known unknowns, and unknown unknowns. He’s not likely to stop Tweeting anytime soon, and uncertainty has risen in markets given Trump’s executive orders. But I’m hopeful he’s learning unilateralism won’t always work – even for the President of the United States. Then we get back to focusing on the US and global economies. Either way, politics is the new black for traders and daily and weekly market letter writers like myself.
- (As an aside if it’s true Trump will honour the Australia-US refugee resettlement deal agree with the Obama White House I’d have increased confidence my take on the Trump and his administration settling down is correct).
Markets again
- Back to markets, we get the Fed meeting and non-farm payrolls this week. There has to be a risk that the Fed upgrades its assessment of the economy in its statement. And non-farms are likely to confirm the labour market is fairly tight. The market is expecting an increase of 165,000 jobs.
- Also out this week are decisions from the Bank of England and Bank of Japan. I must say I think there is also a strong chance that both these central banks increase their assessment of their respective economy’s prospects in the year ahead even though they will likely recommit to current policies.
- And of course when February starts we’ll get a raft of PMI’s – manufacturing and services – from across the globe. We even get Chinese data while they are on holidays for their Lunar New Year celebrations.
Australia
- A solid rally of 43 points, 0.75%, to end the week for the ASX 200 which closed right on overhead resistance. Certainly, Friday’s rally was a solid one with materials leading. But the banks are lagging under the weight of a growing sense that all the good news is fully priced. Indeed the Commonwealth Bank Of Australia. (AX:CBA) closed the week at roughly $83 which is around $14.50 a share or around 21% higher than the low late last year. The big question for traders today is whether or not they can push prices up and through this resistance in trade today, and this week.
- SPI traders reckon a break won’t happen this morning – they marked the March contract down 11 points on Friday night.
- This week I’ll be watching the release of the NAB’s Business survey very closely. It’s my favourite indicator of the Australian economy because you get a feel for business conditions, confidence, trading, profitability, and employment in granular detail. But there has been a softening in the survey over recent months which speaks to a slowing in the Australian economy which is not necessarily apparent in other data yet. So this latest update, due tomorrow, will be important.
Forex
- The US dollar is a little better offered early in Asia. It’s difficult to know why at this early stage but if traders are thinking like I am they’ll be wondering if there are any market impacts when futures open this morning as a result of the global reaction to Donald Trump’s US travel ban. Early Asia is often illiquid and a dangerous time to extrapolate a market message. So we’ll see how things play out later today.
- At the moment though, the euro is up 0.2% at 1.0711, the pound is at 1.2562, USDJPY is back under 115 at 114.79, and the Aussie is sitting at 0.7553.
- In broader terms last week was a reasonable one for the US dollar. Against the yen it surged back to 115 and in USD index terms it found support in the 99.50/100 region I’ve been writing about. At 100.56 it’s far from out of the woods. And of course given politics is an impact on markets its possible there is some re-evaluation of the near-term prospects of the buck. But unless or until 99.50 breaks the US dollar is consolidating. The market is still very long dollars so it’s just a question of what the catalyst for the selling – if it comes – might be.
- Looking specifically at the Yen and a break of 115.60/70 – recent high – would be very bullish should it happen. 1.26/27 remains key resistance for GBPUSD but euro has broken it’s little uptrend. (I’ll update the technical on these later today).
- Likewise. the Aussie has broken its January uptrend last week but again found support in the 0.7510/20 region again. This will remain key short-term support. Overall though the AUDUSD does look biased lower.
- Emerging market currencies, and especially the Mexican peso, are doing a little better at the moment. That’s something that might be explained by the fact that the data flow from EM economies is still improving relative to expectations while the G10 – US, UK, Europe, etc. – has started to under shoot.
Commodities
- It feels like an excuse but reports are that even though compliance from OPEC and non-OPEC to the production cuts has been high there is still a focus on the increase in US productive capacity as more oil rigs are added in the US. That saw oil have a down day and close just above the important trendline support we’ve been watching.
- The market is also still very long oil. The latest CFTC data, released Friday, showed the big speculators increased their net long oil position to a new all-time high. That’s a risk. Where to next is an interesting question. A break of $52.50 looks like the level to watch for a cascade lower.
- Gold remains under pressure and sits at $1190 this morning while copper closed Friday night at $2.68.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Trade Balance (MoM), Trade Balance (YoY), Exports, Imports (8.45am)
- China - Chinese New Year (24h)
- Japan - Industrial Production (YoY) (Dec), Industrial Production (MoM) (Dec), Large Retailer's Sales (Dec), Retail Trade (YoY) (Dec), Retail Trade s.a (MoM) (Dec) (10.50am)
- Germany - Import Price Index (MoM) (Dec), Import Price Index (YoY) (Dec) (6pm); Consumer Price Index (YoY) (Jan), Harmonised Index of Consumer Prices (YoY) (Jan), Consumer Price Index (MoM) (Jan), Harmonised Index of Consumer Prices (MoM) (Jan) (12am)
- EU - Gross Domestic Product s.a. (QoQ) (Q4), Gross Domestic Product s.a. (YoY) (Q4) (7pm); Business Climate (Jan), Economic Sentiment Indicator (Jan), Industrial Confidence (Jan), Consumer Confidence (Jan), Services Sentiment (Jan) (9pm)
- UK - Nil
- Canada - Nil
- US - Personal Spending (Dec), Core Personal Consumption Expenditure - Price Index (YoY) (Dec), Personal Income (MoM) (Dec), Personal Consumption Expenditures - Price Index (MoM) (Dec), Core Personal Consumption Expenditure - Price Index (MoM) (Dec), Personal Consumption Expenditures - Price Index (YoY) (Dec) (12.30am); Loan Officer Survey (n/a); Pending Home Sales (MoM) (Dec), Pending Home Sales (YoY) (Dec) (2am); 3-Month Bill Auction, 6-Month Bill Auction (3.30am)
Have a great day's trading.