Originally published by AxiTrader
Market Summary
Stocks closed the quarter higher on Friday night with S&P 500 still feeling the residual effects of expectations of the Trump tax cuts and an economy that is looking reasonably healthy. At the close it was 0.37% higher at a new record of 2,519. The Dow Jones Industrial Average rose 0.11% to 22,405, and the Nasdaq Composite was up 0.66% to 5,495 as traders wonder what the tech sector will do with its cash pile.
US bonds were also higher, recovering from early weakness after the low PCE prints when news broke that President Trump had interviewed the relatively hawkish Kevin Warsh for the role of Fed chair and when the Chicago PMI shot the lights out with a 65.2 print. 2's are at 1.48% and 10's at 2.32%.
The US dollar closed the week and the quarter on thee front foot. Certainly, it was off last week’s highs but overall it looks like a base has been formed for a pulse higher. That’s certainly the case with data showing the ECB does indeed have an inflation – or lack thereof – issue to deal with and as the Catalonian referendum poses and existential crisis to Spain as we know it.
So this morning euro is at 1.1780, the yen is on the back foot at 112.65, GBP/USD is at 1.3376 and the Australian dollar is sitting at 0.7827. The solid Chinese PMI’s released over the weekend should have been a strong positive for the Aussie but President Trump dismissal of Secretary Tillerson’s comments on North Korean discussions has helped in early Asian trade.
Gold is down at $1279 and looking a little wobbly while oil had a great September and end to the quarter. WTI is at $51.67 and Brent is at $56.79 as OPEC tightens its grip on the market. Worth noting though Baker Hughes rigs climbed again last week.
Also worth noting as we start this really big week of data for local and overseas markets is that China is on holidays this week.
Other stuff
- The big story for me is the Catalonian referendum which is being held Sunday there time and which the central government in Madrid is trying to disrupt with force. Ambrose Evans Pritchard wrote over the weekend that this is a bigger risk for the EU project than Brexit and I have to agree. Traders will be watching Spain again, and wondering about the Italian elections all the while waiting for German Chancelor Angela Merkel to cobble together her coalition in the Bundestag. That the euro is still hanging near 1.18 against this - and the central bank - backdrops is remarkable. And unlikely to last.
- That’s also because data Friday showed EU wide inflation is slipping again with a print of 1.5% last month from the 1.6% expected. The ECB’s caution is thus supported by the data.
EU Inflation (Source:Investing.com)
- In the US, Philadelphia Fed president Patrick Harker again highlighted the Fed is going to keep raising rates. He said he’s “pencilled in” another one this year and then 3 next year seems right. He, like many of his colleagues, really believes that labour market tightness necessitates the continued path to normalisation and that wage rises are starting to appear.
- That was enough to keep the US dollar relatively well bid, bond rates up, and expectations of a December hike elevated even though the PCE data printed a little softer than expected at 0.1% for August which saw the year on year rate dip to 1.3%. But it is worth noting that the Chicago PMI shot the lights out with a print of 65.2 against expectations of 58.5 while the Michigan consumer sentiment index dipped to 95.1 a little below the 95.3 estimate. Overall though the Atlanta Fed’s GDPNow projection for Q3 was also upgraded Friday to 2.3% from 2.1% previously.
- UK GDP unexpectedly dipped back to 1.5% the latest read showed Friday. That’s the slowest rate in 4 years and economists hadn’t expected a deviation from the previously reported 1.7% rate. So this was a miss. But Mark Carney comments that “that if the economy continues on the track that it's been on, and all indications are that it is, in the relatively near term we can expect that interest rates would increase somewhat” helped rescue Sterling from the worst of the selling.
- I was all ready to report this morning that back-channel conversations might be working with North Korea based on comments from NSA McMaster last week and those of Secretary of State Tillerson over the weekend. But President Trump blew that up with a tweet over the weekend telling Tillerson not to waste his time, calling Kim Jong-un little rocket man again and saying the US would do what needed to be done.
President Trump's Tweets (Screenshot)
- Chinese PMI’s were released over the weekend and beat expectations all the way around. It was another example of the Chinese economy defying the doomsayers as the country readies for the important CCP National People’s Congress this month. The official Manufacturing PMI came in at 52.4 against expectations of a dip to 51.5 while the services sector read – non-manufacturing – printed 55.4 up from 53.4.
- The local stock market finally broke that little downtrend to close above it on Friday. But it still ended the quarter toward the bottom of the range it has traded in over recent months. That the ASX still lags while the US rallies speaks to the differences in the outlook. US stocks, US companies, are looking at a substantial reduction in their taxation burden – and so lift in earnings – from the Trump tax plans. Australian stocks have no such positive impetus. Perhaps the strong Chinese data might help at the margin this week. But overall the local bourse is stuck in a range looking for a reason to break.
ASX200 Daily (Source:Investing.com)
- At least the downside is holding and it's time for a break higher surely. Close above 5700 today and we'll know we are on the way.
- The Australian dollar is at 0.7834 this morning. It has made a double top above 81 cents and now has a double bottom around 78 cents. So it could be mapping out a range. We'll see the Chinese data certainly helps and the RBA is likely to be upbeat on the economy but in no rush to hike - all of which speaks to a range. That said though I retain a bias for a stronger US dollar which ini turn will put downside on the AUD/USD. Thus a break of last week's low of 0.7799 would open the way to 0.7750, then 0.7650 - maybe lower.
Have a great day's trading.