Originally published by AxiTrader
It’s done. The US House and Senate have both now passed the Trump Tax cut and the President can sign it into law.
But while bond traders have finally noticed that the US economy is doing well and this is likely to add impetus to growth and upward pressure on interest rates (US 10's at 2.49%, 2-10 curve 63) it seems that for the moment stocks traders appear to feel the good news is priced in.
So with an 90 minutes to go before the close the S&P 500 is up 0.1% to 2,682, the Dow is up 0.05%, and the Nasdaq 100 is flat at 6,480. Europe’s bourses were lower across the board as a stronger euro weighed.
As a result SPI traders have marked prices down overnight knocking 16 points of the contract which rolls today with the same amount coming off the March contract.
In currency markets, forex traders remain nonplussed about US dollar which continues to struggle to gain traction. I ask you, if the governments of the EU had got together to pass a tax cut what would the impact on the euro be. Not nothing, that’s for sure.
Anyway, the euro has gained another 0.35% to 1.1878, sterling is largely unchanged at 1.3395, but the yen is actually losing ground – as bond rates in the US and Europe rise – with USD/JPY at 113.34. Of the commodity bloc the Aussie and kiwi are close to where they were this time yesterday at 0.7666, and 0.6980 respectively. The Canadian dollar has strengthened a little with oil’s rise while at the same time reversing off the top of the box USD/CAD is trading in – its at 1.2834 this morning.
On commodity market despite the rise in global bond rates gold is a little higher this morning at $1265.80 while WTI and Brent are up after another solid draw in US crude oil inventories. They are at $58.05 and $64.48 respectively after gains of 0.85% and 1.07%. Copper – and metals more broadly – rallied again on China’s upbeat growth outlook for 2018. The metal with a phd is up 1.44% to $3.188.
After today we can all slip into holiday mode. But before that we have Kiwi Q3 GDP this morning, the BoJ interest rate decision this afternoon and then Canadian retail sales, and inflation data along with the latest read on US Q3 GDP (and associated price measures) tonight.
Major Data Releases for the past 24 hours
Here's What I Picked Up (with a little more detail and a few charts)
International
- White House economic adviser Gary Cohn said that the tax cut is still not priced into stocks. “When I look at what is going on in the stock market, I don’t think a lot of the tax cut is in the stock market,” Cohn said, adding “We don’t have huge [price-to-earnings] multiples”. On the unpopularity of the bill with the American voters, he said once they see the real impact in what they take home as pay each week next year he thought things would change. “Seeing is believing. When workers in the United States see their paycheck, their take-home money go up in February, I think there will be a huge change in sentiment,” Cohn said. This is important. There is a certain blindspot commentators have toward anything president Trump and the GOP does at the moment (certainly forex traders are as guilty as anyone) so it will be interesting to see what real impact on workers, consumer sentiment, and consumption really are.
- Bonds folks. Watch the bond market. I highlighted the potential break of the down trendline in the US 10-year bond downtrend line, which stretches back to 1990, in yesterday’s note. So it is worth highlighting that US 10’s lifted again overnight and are now at 2.49% as I write. The highest level since March. But it’s not just US bonds. German, French and other bonds are also rising. Something to watch folks. Something that is important if this little break higher becomes the trend of 2018 – which it could. It will impact all macro markets if bond rates keep rising as I think they must in the year ahead.
- Chinese growth looks set to be strong again in 2018. That’s the takeaway from the projection of the Chinese Academy of Social Science forecast of 6.7% released yesterday. The report at the end of its conference late yesterday made it clear that the focus of the new economic plan – what’s being called Xinomics – is a focus not on a reduction in credit in the economy but a reduction in credit growth in the economy. That’s a subtle but important shift. A reduction in credit in the economy – a deleveraging – would have materially impacted growth. This policy will have a much less aggressive impact on growth.
- Even though China is making an economic transition from investment lead growth to consumption lead growth this is important for Australia, and expectations about growth and commodity prices in the year/s ahead. Metals in Shanghai were up again yesterday while rebar and iron ore were also higher.
Australia
- Is that it? That’s the question local stock traders might be asking themselves as they head toward their screens this morning after US markets failed to kick on after the passage of the Tax bill. Certainly yesterday’s trade on the ASX was solid with early weakness fading for a close at 6,075. But this morning SPI traders – as they did yesterday – have marked prices down suggesting a 22 point fall at the open. That would take the ASX200 back to the breakout zone of 6,050/55 which needs to hold for this not to become a deeper reversal.
- Looking at the SPI now, and taking into account our CFD rolled a couple of days ago which knocked quite a few points off the price (Dec SPI is 6056 this morning while March is 6017), it looks biased back inside the range. That this is the case and that US stocks didn’t go on with it is worth noting. With today and likely half a day’s trade on the ASX tomorrow will the buyers be keen to get busy again or will they simply be happy to let things drift and settle where they may. My sense is the the latter.
- Anyway here’s the chart – worth noting the last two candles which to me suggest further dips.
Forex
- Is the US dollar index forming a head and shoulders pattern and thus about to take another leg lower. That’s the question I’m asking myself as I look at the daily chart this morning. Certainly sentiment continues to be anti US dollar – at least against the euro which is the primary driver of this DXY index – and the key level to watch is 92.50. DXY is at 93.31 this morning, down 0.15%.
- Euro doesn’t quite look the same (in inverted terms of course) but it is heading toward trendline resistance. Now there are a lot of lines on this chart. But they are all relevant depending on the time frame being traded. For the moment 1.1930 topside and 1.1830 bottomside are the levels to watch.
Commodities
- Oil is higher after US crude stocks fell by 6.5 million Bbls last week, EIA data released overnight showed. That took overall stocks in the US fell to the lowest in 26 months at 436.5 million Bbls. The data also showed that US crude output rose to a new high of 9,789 million Bbls.
- That saw prices rise which has taken WTI to mild downtrend resistance this morning.
- It looks like we’ll have to start watching a new oil benchmark with news that China is getting set to launch its own, yuan based, oil future in the next few weeks. Dow Jones reports that trading will be based on the Shanghai Exchange. While it makes sense for China to have its own future given that it takes around 20% of global oil supply. But the interesting question is going to be whether this new contract introduces a new level of volatility into oil markets.
Have a great day's trading.