US Stocks Did Something Overnight That We Haven't Seen Since The GFC

Originally published by AxiTrader

Quick Recap

The High Court ruled that the British parliament must get a vote before prime minister Teresa May can trigger the Article 50 to start the Brexit process. That saw sterling rush higher as notions of a soft, perhaps no, Brexit grew giving Sterling a strong bid tone.

Elsewhere stocks continue to slide in the US and it's hard to see a circuit breaker this side of the election result. Even a strong non-farm payrolls tonight could hurt stocks if it reinforces notions the Fed will raise rates in December.

Crude is looking for its own circuit breaker for current weakness as well and slipped further overnight.

What You Need To Know

International

• A lot of chat about the continued falls in the S&P 500 which has stretched now into its 6th days of losses. Apparently that’s a stretch that it hasn’t had since the dark days of the post-Lehman markets funk. But as yet there are still no signs of a circuit breaker until we get to the election so the stretch could continue.

• At the close of trade the S&P is down 0.44% at 2087 – still looking for 2080 – the Dow Jones Industrial Average is at 17,930 largely unchanged and the Nasdaq 100 is off 0.92%. Facebook Inc (NASDAQ:FB) has had a bad day.

• The polls appear to show that Hillary Clinton is back in the lead. But what we are really seeing is an election that appears too-close-to-call. The NYT/CBS poll has Clinton ahead by 3 points while others are neck and neck at 44 and the ABC News/Washington Post poll that got everyone talking earlier this week has Mrs Clinton just in the lead again.

• It makes for a really interesting trading day in our time zone Wednesday when the result are going to be release

• The High Court in Britain delivered it decision on Brexit saying that a vote of Parliament was needed for Britain trigger Article 50 to exit the EU. Some see it as a blow to Teresa May’s plans for a hard exit and realistically it does lower those chances from the UK’s side. But don’t forget there are two sides to this negotiations. Anyway forex traders liked it and GBP was bid in the aftermath running quickly up to 1.24.

• Also helping GBP was the Bank of England’s decision to leave rates on hold at 0.25% and signal that rates are now neutral and it has no plans to ease rates again this year.

• Some interesting data in the US services sector last night the ISM non-manufacturing PMI came in at a weaker than expected 54.8 from 57.1 and against the 56 expected while the Markit services printed the same number but that was up from last months 52.3. US factory orders printed up 0.3% for the month while jobless claims rose to 265,000 last week

• Egypt has devalued its currency – the pound – by more than 30% and then floated it overnight as the nation fights its economic woes.

Australia

• The local market was flat yesterday after early weakness. SPI traders are betting that we see further weakness today though with the December contract 20 points lower at 5173 this morning.

• That’s actually not a terrible result all things considered because the SPI traded down to 2144 in the past 24 hours which is just below the support zone at 5150 that I’ve been watching. I don’t have a buy signal yet and naturally the Aussie market's future is not its own given everything happening overseas but if this level can hold it will be a good sign for the market to end the week.

• Today is a huge day for local markets though – not because of non-farms tonight – but because the RBA will release it’s quarterly statement on monetary policy. Yesterday the release of the Dun and Bradstreet business expectations survey, which hit a 17 year high, underscored why the RBA is comfortable walking away from any plans to ease further and signaling comfort with current economic and interest rate settings.

• Traders will be watching closely to see what the RBA says about growth, employment, the Australian dollar, and the outlook for housing and any implications for the banks.

• Speaking of which Shayne Elliott at the ANZ Banking Group (AX:ANZ) is shrinking his bank to a higher share price. ANZ made strong gains yesterday after making a big reduction in profit but adding the sale of its life business to the already announced wealth management sale. He’s also warned on mortgage lending as well. Investors like decisive action and a sense of control in what has been an awfully volatile year for sentiment and Elliott has been rewarded.

Forex

• The US Dollar fought back from its weakest point overnight as traders took some succor from polls suggesting Clinton is still in the lead. As I noted above though we are inside the statistical margin of error. But as the chart of the DXY shows there is little sign of a turn in the outlook just yet.

• Besides the Brexit high court decision, the Bank of England announcement GBP also got a lift from another piece of data which showed the economy is still defying the doomsayers. The Markit/CIPS services PMI printed 54.5 from 52.6 last and 52.4 expected. Sterling has been languishing the US dollar dip even with this move overnight so we could see some catch up in the days ahead. 1.26/27 is not out of the question.

• Euro is back above 1.11, and USD/JPY bounced off the 102.54ish low and is back at 102.98 as I write. Both these pairs look like they are stalling at present which makes the print of non-farm payrolls, and what that says about the US economy and the Fed vitally important tonight. Here’s USDJPY.

• Looking at the Aussie dollar and it’s not only hanging tough it is strengthening. Yesterday’s much smaller than expected trade deficit and the increasing chance that we’ll be running trade surpluses in the months ahead is a bit of a paradigm shift for the nation and turns the supply demand dynamics at the margin. But it also changes perceptions of vulnerabilities about Australia in times of troubles which can act as a salve next week if markets react poorly should Donald Trump win the election or it is too close to call.

Commodities

• Oil is down again this morning with Crude Oil down 1.8% and Brent Oil down 1.37% to $44.52 and $46.22 respectively. As I noted in my extra note on Crude oil yesterday morning Crude broke below the uptrend line from the lows of 2016 with yesterday’s fall. That opens up the chance of a garden variety 38.2% retracement as a normal target – that level is in the $42.20 region.

• News of an attack on a Nigerian pipeline overnight has tempered the bearishness to a certain extent. But the price action and the charts still look biased lower.

• Gold has had a wild ride the past 24 hours although it has remained elevated and is at $1300 this morning. But a quick look at the chart shows all the tooing and froing. Gold is still one of the best hedges against the current level of uncertainty but traders clearly know its come a long way already.

• Speaking of coming a long way. After retesting the break out yesterday copper is higher again to up 0.83% at $2.445.

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

• Australia - Retail Sales s.a. (MoM) (Sep) (11.30am); RBA Monetary Policy Statement (12.30pm)
• New Zealand - Labour cost index (YoY) (Q3), Labour cost index (QoQ) (Q3) (8.45am)
• China - Nil
• Japan - Foreign investment in Japan stocks (Oct 28), Foreign bond investment (Oct 28), Markit Services PMI (Oct) (10.50am)
• Germany - Markit PMI Composite (Oct), Markit Services PMI (Oct) (7.55pm)
• EU - Markit Services PMI (Oct), Markit PMI Composite (Oct) (8pm); Producer Price Index (MoM) (Sep), Producer Price Index (YoY) (Sep) (9pm)
• UK - Nil
• Canada - BoC Governor Poloz Speech (11.35am); Exports (Sep), International Merchandise Trade (Sep), Imports (Sep), Participation rate (Oct), Unemployment Rate (Oct), Net Change in Employment (Oct) (11.30pm); Ivey Purchasing Managers Index s.a (Oct), Ivey Purchasing Managers Index (Oct) (1am)
• US - Nonfarm Payrolls (Oct), Average Hourly Earnings (YoY) (Oct), Average Weekly Hours (Oct), Labor Force Participation Rate (Oct), Average Hourly Earnings (MoM) (Oct), Unemployment Rate (Oct), Trade Balance (Sep) (11.30pm); Baker Hughes US Oil Rig Count (4am)

Have a great day's trading