Originally published by AxiTrader
Market Summary (7.44 am Tuesday April 17)
Stocks in Asia and Europe struggled yesterday but the lead from the US is more positive as prices rose solidly even if the S&P 500 is still just shy of breaching overhead resistance.
At the close the S&P 500 is at 2,677, up 0.87% while the Dow rose 0.87% to finish at 24,573 and the Nasdaq 100 is up a similar amount to finish the day at 6,683. Netflix (NASDAQ:NFLX) has just smoked expectations with an aftermarket report so that might help futures in Asia today.
In Europe it feels like the threat of fresh Russian sanctions might have restrained prices a little. That and the weakness in Chinese stocks which saw the Shanghai Composite fall 1.53% while the Hang Seng was 1.6% lower. So at the close the DAX was 0.4%, the FTSE lost 0.9%, while the CAC was just marginally lower.
Given the US move and reports are that President Trump has scotched the next round of muted Russian sanctions Europe might have a better day ahead. China, that’s a more interesting and nuanced question. That’s particularly so given its triple treat data day with the release of retail sales, industrial production, and fixed asset investment, not to mention Q1 GDP.
Here at home SPI traders are a little nonplussed with the US moves at the moment. Yes we had weakness in the big global miners overnight but the 3 point rally since yesterday’s close of the S&P/ASX 200 at 5,841 seems a little underdone. We’ll see.
Fed speakers talking up the prospects of continued rate hikes, former dove Neel Kashkari sounding almost hawkish overnight, and retail sales for March bouncing 0.6% (consensus 0.4%) couldn’t help the US dollar over night as it headed back to last week’s low in US Dollar Index terms. I have to respect the price action which reflects a constant inability to take a trick as a clear signal of the markets intent. Where the circuit breaker is I’m not sure.
At present euro is trading 1.2382 up 0.43%, sterling has fairly soared 0.72% to 1.4341, while the Canadian dollar has gained 0.4% even though oil gave up more than 1% of its gains. USD/CAD is at 1.2565. USD/JPY is only down 0.2% while the Aussie dollar, which traded down to a 0.7751 low is now back at 0.7782 up 0.2%. The kiwi is flat at 0.7358.
US 2-yearrates hit the highest level since 2008 overnight and currently sit at 2.38%. 10's are at 2.83%.
On commodity markets the “buy the fear, sell the bombs” idea seems to have held true with WTI down 1.57% to $66.13 with Brent off 1.47% to $71.51. The EIA said overnight US shale will further increase production by 125,000 bpd next month. Copper rose half a percent to $3.0825 and gold is at $1345 an ounce.
On the day ahead we get the RBA minutes from the last meeting but they will be overshadowed in our timezone by all things China with the Triple Treat of data plus GDP. It’s potentially a huge data dump for local and global markets.
UK employment data is out tonight as is the ZEW conditions and sentiment data in Germany. In the US it’s industrial production and a raft of Fed speakers including Williams, Harker, Evans, and Bostic. On the earnings front, the big ones are Goldman Sachs (NYSE:GS), IBM (NYSE:IBM), and Johnson & Johnson (NYSE:JNJ).
Here's What I Picked Up (with a little more detail and a few charts)
International
- US stocks are higher this morning, but the S&P is still stuck below important resistance. I’ve highlighted this 2,675/2,700ish region as the key to a big surge and I’m sure there are plenty of others doing the same. For the moment though price has not been able to kick on. If it can the 100 day moving average comes in at 2,702 (in CFD terms) and the 61.8% retracement level of the recent fall is at 2,706. Then there is downtrend line around 2,745/50 to watch.
- Tell me this isn’t bullish for the US economy but equally important for the Fed and its tightening cycle. Via Twitter, JesseFelder says “Payroll direct deposit numbers from Bank of America (NYSE:BAC) customers show wages grew 7.5% in March accelerating from their 5.2% gain in February”. Can I say BOOM!!!!
- It’s not helping the US dollar at the moment, sentiment is just too far against it at present. But it does speak to why, with the uptick in inflation, the Fed is speaking about more rate hikes. Overnight we heard from a myriad of Fed speakers and, in particular, I thought NY Fed’s outgoing president Bill Dudley saying ore than 4 hikes in 2018 is unlikely was a neat way of saying we might actually end up with 3 more if the economy tracks as strongly as the Fed seems to think it will. I won’t highlight all the comments but offer you this tweet of mine from last night. Neel Kashkari folks! Last year I would have had him second only to James Bullard in the dove stakes. But not anymore it seems. Monetary evolution at work!
- And on the Fed, President Trump has tapped Richard Clarida, former assistant secretary at the US Treasury and current professor at Columbia University and PIMCO advisor, to be Fed vice-chair.
- President Trump might be a bit confused about currencies. Yes his sanctions have seen the Russian rouble get belted in the past couple of weeks. And yes with oil where it is Russia will be raking it in when it converts its petro-dollars to Roubles. But in calling out Russia and China for playing the currency devaluation game – something the US Treasury did not do as recently as last week – President Trump is on shaky ground. Indeed USDCNY is back near levels just before the 2015 currency devaluation.
- But I raise this for a couple of reasons. Trump may have – reportedly – scotched the next round of sanctions on Russia after the Syria gas attack and the trade tensions with China may have receded a little. But the key is he still clearly has both nations in his sights. So markets and traders will still have to have one eye on Twitter. Indeed news last night US firms are not allowed to sell parts to Chinese phone maker ZTE. And this morning the Wall Street Journal reports, “US Weighs New Trade Action Against China, Over Curbs on Tech Companies”.
Australia
- The RBA minutes are out today. But whatever spin they put on their positive outlook rates aren’t about to increase anytime soon. Greg Jericho over at the Guardian explains why. I agree 100%.
- In terms of the Aussie dollar that’s a handbrake. But the outlook has to be brightening if risk appetite is lifting and if all the fears that have beset traders are receding. Yet for the moment the Aussie has found itself unable to get up and through resistance in the 0.7800/20 region. That said though, it roared back swiftly from the fall to 0.7751 last night so the positives I just noted, and the US dollar's weakness, are certainly seeing plenty of buyers still floating around.
- Today could be a big day, one way of the other, for the Aussie given the big Chinese data dump. In some ways there could be something for everyone given there is just so many data points. But it’s worth remembering that Chinese trade last week showed a surprise deficit which didn’t hurt the Aussie at all. So there is an emerging bullish consensus it seems for the Aussie. If it can run through 0.7820 it might be able to accelerate.
- On stocks if the SPI can’t get up and through 5,855 (June, our CFD) then the outlook remains clouded. Indeed when you look at the chart below you see the little uptrend from the recent low has been broken with an indecisive but negative day to open the week. On the day 5,855remains resistance and if we see prices slip below 5,808 (5,820 currently) we could be in for a short sharp run lower.
Forex
- If there is a simple chart which highlights why so many folks are happy to seel the US dollar and remain short it is this one. As Gluskin Sheff’s David Rosenberg wrote in the tweet accompanying this chart, “Tell me the US dollar does not have considerable more downside potential. Buy gold. Buy oil. Buy commodities.” Many traders and investors agree with him and if 96 breaks in DXY terms I’ll have no choice but to as well.
- And this is the key folks. While the euro and many other pairs are still in a range – indeed the DXY is too – the impetus for the next big leg in forex markets and forex volatility is absent. But should these ranges break there is likely to be some significant impetus for further moves. There is a certain asymmetry though given the lack of support for the US dollar at the moment. I’m not sure what the catalyst for a US dollar recovery are or where that might come from. There are many pillars on which that recovery could have rested and begun. But for the moment all we’ve had is a hiatus in the fall. Time will tell I guess.
Commodities
- Buy the rumour, sell the fact. It’s an old axiom and analogous to the one I mentioned yesterday that I’d read in the FT – “buy the build-up, sell the bombs”. And it worked on Monday as we open the week. That was despite comments from OPEC secretary general Barkindo who very subtly let the market know there is not enough exploration to satisfy future demand as well as other OPEC comments that the production cut deal will go till at least the end of the year. Certainly the EIA saying shale is goinig to pump another 125,000 bpd in may might have got some attention. But feels more like an adjustment to previous data.
- The price action however, is the price action and both Brent and WTI pulled back sharply last night. What’s important though folks is that they both found support at the break out level. Here’s Brent. It looks toppy, but while it holds these levels – perhaps down to $70.54 it looks okay still for a run higher in the immediate term. Any deeper pullback would delay that.
Have a great day's trading.