US Stocks Are Hitting Record Highs Again

Originally published by AxiTrader

Key Takeaway

The Trumponomics rally is back in force again this morning with US and European stocks up strongly overnight. Financials, industrials, and basic materials are leading the charge higher in the S&P 500 suggesting traders are again focusing on the growth aspects of Donald Trump’s policy platform.

On forex markets the US dollar index's recovery continued. It’s at 101.04 this morning with euro down under 1.06 and the yen weakening again. The US dollar move, and the proximity of 77 cents, have also knocked the AUDUSD lower.

Gold makes more sense today and is down 0.63% to $1225. Oil is also lower losing 1.8% as it continues volatile trade within a fairly tight range.

What You Need To Know

• S&P 500 +13 (0.57%) 2329 (8.04 am Sydney)
• Dow +143 (0.74%) 20,412
• Nasdaq 100 +30 (0.53%) 5765
• SPI 200 +15 (0.3%) 5728
• AUD/USD 0.7639 -0.4%
• Gold $1225 -0.71%
• WTI Oil $52.89 -1.8%

International

• It’s all about Trumponomics and expectations today as risk appetite rises and faith in Donald Trump’s ability to deliver and implement his transformative polices for the US economy grows.

• With 90 minutes to go the Dow is up 154 points, 0.76%, the Nasdaq is 0.63% higher, and the S&P 500 has put on another 14 points, 0.62%, to 2330. It’s a solid move higher and though its based on hope and expectation this rally could have substantial legs if the US president retains his more relaxed and conciliatory – dare I say “Presidential”.

• European stocks were naturally higher as well with France and Germany the big winners once again. That, along with the rise in US and German rates but fall in Italian and Spanish rates, conveys the strong message that traders have moved on from last week’s worry about Trumponomics, reflation, and the European political situation. Naturally that’s a little dangerous. But as an old mentor used to say to me “It is what it is. Now trade the market in front of you.”

• Speaking of the conciliatory Trump we saw the latest iteration in his discussion and press conference with Canadian prime minister Justin Trudeau this morning. President Trump has walked back from the aggressive renegotiation of the NAFTA deal - and the chance it could be ripped up. Rather, in consideration of the impact that would have on Canada and Canadian jobs he said NAFTA would be tweaked.

• That's a very different president to the one we saw in the first two weeks of his presidency. That's fueling this rally because traders are betting his focus is back on the positive aspects of the tax, regulatory, and growth aspects of his policy platform.

• It’s an interesting 24 hours on the data and event docket.

• Probably the headline is the appearance by Fed chair Yellen at the US Senate for her semi-annual testimony. With a more conciliatory president, Yellen is freed a little from mincing her words. But I can’t see why she would deviate too far from the message her deputy, Stanley Fischer, delivered over the weekend. That is there is still much uncertainty about the fiscal outlook and as such the Fed must be guided by its statutory mandate. That's kind of hawkish though when you think about it and could aid the US dollar.

• Chinese CPI and Japanese industrial production are out in our timezone today. Tonight we get a huge set of numbers for Europe and forex traders with the release of CPI, ZEW survey and GDP in Germany. UK inflation is also out as is Greek and EU GDP. And then we get the NFIB optimism index and producer prices in the US.

• I’ll have lots to talk about tomorrow :)

Australia

• In my best Lawry Lawrence voice – go you good thing. Following Friday’s 0.99% rally the market was up another 0.7% yesterday at 5760. The ratio of winners to losers on the S&P/ASX 200 was about 2:1 yesterday and naturally with base metals through the roof again basic materials were leading the charge with the sector up more than 2%, Energy was strong – though that will be reversed today after last night move lower in oil prices. And stocks across the region were in the winner’s circle at well. That didn’t hurt sentiment.

• The miners rocketed yesterday with Rio up more than 3% and was trading at its highest levels since 2014. Fortescue Metals Group Ltd (AX:FMG), and BHP Billiton Ltd (AX:BHP) were up sharply as well while Iron ore has put on another 5% plus rally at one point. Much of those gains in metals were given back last night even though prices still finished in the black.

• The big questions traders will be asking themselves soon, surely, is whether all the work the miners have done to reduce costs is worth the premium that the miners seem to be putting in between themselves and the recovery in Iron ore and other commodities.

• Looking at the overall move in the ASX200 the key to big moves in Australia and Asia is that Donald Trump has wound it back and refocussed on the positives the market expects from his presidency. It all started Thursday night with the president promising “phenomenal” tax cuts. That started folks thinking again about the positives of his presidency. Throw in a more conciliatory approach to China, and the friendliness toward Japan’s PM Abe, and his recommitment to regional security, and we end up with a market that want’s to accentuate the positive once more.

• So the question is how far can the local market run? Overnight SPI traders have pencilled in another 20 point rally at the open and Technically it looks like it can run back to 5800/30 – the January highs and then we’ll see in the short run. Longer term I’m still targeting a move to 5950.

• On the docket today is the NAB’s monthly business survey. It’s the best and most comprehensive report card on the Australian economy each month. So we’ll know at 10.30am this morning if the RBA’s belief in a strong economy is on the money. Chinese CPI will be important for sentiment in our time zone as well.

Forex

• It’s been a fairly quite night in forex all things considered as traders wait for tonights data and for a lead from Fed chair Yellen when she speaks in the Senate. But overall the US dollar is stronger again as the yen and euro come under pressure both down around 0.36% to 113.62 and 1.0598 respectively. Sterling is higher by about 0.3% at 1.2525 but it’s still trapped in a fairly tight range right now.

• The CAD has done well given the fall in oil with USDCAD sitting at 1.3065 DOWN 0.11%. That’s almost miraculous and highlights that USD/CAD retains a mildly negative bias at the moment

• The Australian dollar is caught a little between a stronger US dollar after it has based nicely in the past two weeks and the positives of risk appetite, solid global growth, an RBA not keen to cut rates anytime soon. 77 cents is still a very scary level for the bulls as it’s been a graveyard for them over the past year. Can the Aussie best resistance in the 0.7700/20 region – eventually, but it’s still tough right now.

Commodities

• Buy the rumour, sell the fact? That seems to be the message in the price of oil which is down more than 2% in Brent terms and 1.8% in Nymex terms to $55.55 and $52.84 respectively. It’s interesting that the reports this morning are that traders sold after the OPEC official monthly reported showed it was the Saudis driving the high compliance. Perhaps it was the point I made a week ago that when you abstract the Saudis the overall compliance is the usual poor OPEC track record.

• Perhaps the focus of the selling was OPEC’s increased estimate of the growth in production outside the group from 120,000 bpd to 240,000 bpd. Small fry. But a reminder of the vast reserves in the US Permian basin and the threat shale oil is to any big price rises.

• Technically thoughWTI and Brent are simply trapped in a range. It’s a $3 range inside the $50.50/$55.50 range WTI is in at the moment. And it is a range that traders have been aggressively moving from one side to the other.

• Gold makes more sense today than it did at $1233 this time yesterday. That is to say that the recovery in gold – even with concerns about the French election – was inconsistent with the rally in stocks, the US dollar, and risk appetite. Indeed last night US and German bonds rose while Italian and Spanish bonds fell. That’s a backdrop that is not gold supportive. But the key level to watch remains the $1219/20 level. Gold is currently sitting at $1225.

• Copper rallied hard but was knocked back in the past 24 hours. One of the great things about the world where central banks are the only game in town is that markets have a reduced correlation with each other and underlying fundamentals matter. And when it comes to copper nothing could be more fundamental than the disruption to supply from the globes biggest copper mine – Escondida, and BHP Billiton Ltd's (AX:BHP) declaration of force majeure. Throw in Freeport McMoran’s troubles with its Indonesian licence and we have a major supply disruption.

• My technical target is for this run continues to be $3 a pound but it’s fair to say the price action in copper overnight was a bit tricky. That is along with other metals copper pulled back from a high above $2.82 a pound and is back at $2.78 this morning. Testing the break – which needs to hold. .

Today's key data and events (all times AEDT)

• Australia - Westpac Consumer Confidence Index (Feb), Westpac Consumer Confidence (Feb) (10.30am); National Australia Bank's Business Conditions (Jan), National Australia Bank's Business Confidence (Jan) (11.30am)
• New Zealand - Food Price Index (MoM) (Jan) (8.45am)
• China - Producer Price Index (YoY) (Jan), Consumer Price Index (MoM) (Jan), Consumer Price Index (YoY) (Jan) (12.30pm)
• Japan - Industrial Production (MoM) (Dec), Industrial Production (YoY) (Dec), Capacity Utilization (Dec) (3.30pm)
• Germany - Consumer Price Index (YoY) (Jan), Harmonised Index of Consumer Prices (MoM) (Jan), Consumer Price Index (MoM) (Jan), Harmonised Index of Consumer Prices (YoY) (Jan), Gross Domestic Product n.s.a (YoY) (Q4), Gross Domestic Product w.d.a (YoY) (Q4), Gross Domestic Product s.a (QoQ) (Q4) (6pm); ZEW Survey - Economic Sentiment (Feb), ZEW Survey - Current Situation (Feb) (9pm)
• EU - Gross Domestic Product s.a. (YoY) (Q4), Gross Domestic Product s.a. (QoQ) (Q4), European Commission Releases Economic Growth Forecasts, Industrial Production w.d.a. (YoY) (Dec), Industrial Production s.a. (MoM) (Dec) (9pm); ZEW Survey - Economic Sentiment (Feb) (9pm)
• UK - Retail Price Index (YoY) (Jan), Retail Price Index (MoM) (Jan), DCLG House Price Index (YoY) (Jan), Producer Price Index - Output (YoY) n.s.a (Jan), Producer Price Index - Output (MoM) n.s.a (Jan), PPI Core Output (MoM) n.s.a (Jan), Producer Price Index - Input (YoY) n.s.a (Jan), PPI Core Output (YoY) n.s.a (Jan), Producer Price Index - Input (MoM) n.s.a (Jan), Consumer Price Index (YoY) (Jan), Core Consumer Price Index (YoY) (Jan), Consumer Price Index (MoM) (Jan) (8.30pm)
• Canada - Nil
• US - NFIB Business Optimism Index (Jan) (10pm); Producer Price Index (MoM) (Jan), Producer Price Index (YoY) (Jan), Producer Price Index ex Food & Energy (YoY) (Jan), Producer Price Index ex Food & Energy (MoM) (Jan) (12.30am); Redbook index (MoM) (Feb 10), Redbook index (YoY) (Feb 10) (12.55am); NAHB Housing Market Index (Feb) (2am); API Weekly Crude Oil Stock (8.30am)

Have a great day's trading.