Originally published by AxiTrader
Welcome to my daily Markets Musings.
This is essentially my little black book, the diary of market moves I’ve been writing for myself since April 1988.
It’s not supposed to catch everything – just the things that help me build the fundamental narrative I need around what’s happening in the markets I watch, and which then readies me to take the technical signals when they come.
Feedback always welcome
Greg
Market Summary
As we kick off our Tuesday here in AustralAsia it’s been a mixed night for global markets.
The weakness we saw in Chinese and Asian stocks yesterday hurt sentiment in Europe with the FTSE 100, DAX, CAC, and FTSE MIB (Milan) all lower at the close. US stocks haven’t exactly shaken that off completely and have been trading either side of flat since I got to my desk. Falls in the basic materials and energy sectors are outweighing other gains. So at 6.50am AEDT the S&P 500 has a fall of just 0.01% at 2602, The Dow Jones Industrial Average is up 0.13% to 23, 585 and the Nasdaq is down 0.07% at 6405.
On bond markets the US curve is still at or near 10-year lows with the 2-10 at 57.90 points with the 2's at 1.75% and the 10's just under 2.33%. Chinese 10's, the ones everyone is watching, are at 3.98% - just below the crucial 4% level the PBoC appears to be set on defending.
In many ways though its forex and oil markets where the most interest lies this morning.
After surging last week oil drifted back as press, and it seems traders, worry that the Saudi/Russia compact which is the strength behind the production cut agreement is faltering with prices where they are. That and an inkling more US tight oil will be coming down the pipe has left WTI down 1.29% at $58.19 and Brent at $63.77 only marginally lower given it missed the big part of the surge last week.
On forex markets the yen is strongest sitting back at 111.00 this morning for a gain of 0.4%. The euro dipped about a quarter of a percent to 1.1900 and sterling is at 1.3320. US housing starts at 10-year highs and comments from Fed officials over the tightness in the labour market haven’t hurt. In the commodity bloc it’s been a mixed day. The Aussie is down a fraction at 0.7608 – it still can’t best resistance. The Canadian dollar came under pressure and is back at 1.2762 while the kiwi is the winner of the three having gained 0.35% to 0.6904.
In other markets Bitcoin is still fascinating everyone as it nears USD10,000 a coin. Gold is up $6 at $1294 as its mildly volatile range continues. Copper dipped back to $3.13 in what was a mixed to down night for metals. Iron ore looks like its lower on the Dalian but a little higher in New York.
It’s another relatively quiet day of data in our timezone although Korean business confidence might be interesting after the KOSPI's big fall yesterday. We also have speeches from Bill Dudley and Neel Kashkari from the Fed this morning our time.
Tonight it’s German import prices and Gfk consumer confidence, UK house prices, Canadian PPI, and then US goods trade balance, wholesale inventories, and Case Shiller house prices.
Here's What I Picked Up (with a little more detail and a few charts) Pretty quiet really
International
- Tax cuts. Are we going to get them or not? This week in the Senate is important in that regard and while progress seems to be being made we heard from another Republican Senator (Daines) overnight that he is currently a no. We’ll see how it all plays out. But CNBC reports that JP Morgan’s derivate strategist says tax reform could add “5 percent near-term upside to the S&P 500”. Boom folks, Boom. We’d get taken along for the ride here on the ASX to a certain extent even if it will be with a lower beta.
- Chinese industrial profits were pretty solid yesterday with a year on year gain of 25.1% in October. It didn’t exactly help Chinese stocks which came under renewed selling pressure. But markets were of their lows. Also out of China in the past day is fresh news the authorities are going to continue targeting 6.5% growth. Reuters reports this morning that sources said “Next year's growth target could be similar to this year's…It's OK as long as we are able to secure growth of 6.5 percent”. Another source added “growth cannot be too low as we still need to build a modestly prosperous society as outlined at the party congress”.
- Folks are getting worried about the “Irish” issue I highlighted yesterday morning with regard to Brexit. Keep an eye on this. My sense is the chances of a hard Brexit are growing.
- What the heck. It’s a bit of a side show but there are serious shenanigans going on in US banking watchdog the CFPB. Last week the head of the agency resigned and appointed his deputy to run the place. But president Trump has parachuted his budget office boss Mick Mulvaney into the role and yesterday two bosses turned up for work. What a mess. The FT has more here. I just throw that in to show the administrative dysfunction of the administration which can get in the way of achieving its policy goals and thus impact markets and the economy.
Australia
- A mildly positive day yesterday for the ASX amid the messiness of the regions markets. All in all not a terrible day. But the failure of prices above 6,000 and close at 5,988 suggests that the SPI traders are right to have knocked a few points off the close yesterday.
- So this morning the SPI200 looks biased lower. Just look at that ugly candlestick of the past 24 hours. The high at 6019 held below the top of the range I mentioned yesterday and the bottom is around 5950 (very short term that is) – perhaps we are biased lower again today to test support. That would be my bet,
Forex
- The US dollar is mildly stronger but it has been a very mixed night. The euro’s surge didn’t exactly run into a wall but it certainly lacked follow through even though there was more news that the pressure is building on the SPD to form a “grand coalition” in Germany. EUR/USD has an ugly pin bar suggestive of the high chance of a further retracement.
- USD/JPY reversed course in the past 24 hours to just pip the Kiwi as the best performer of the major traded currencies. I confess to being surprised that the yen has benefitted more from the non-too-subtle hints from the BoJ that it is almost time to change its approach to monetary policy. I guess some would say at 111 the yen already has. But for me, I’m targeting something in the 108/109 region as a start. BoJ’s Nakaso speech tomorrow night will be interesting.
- For the commodity bloc it was an interesting night. The Aussie is lagging the kiwi badly after the former broke the trendline resistance to make a high around 0.7644 but then promptly fell back to sit just above 76 cents this morning. Nothing like the lack of yield spread to hurt the Aussie. The Canadian dollar lost ground as well and its up 0.4% this morning at 1.2760. That’s an interesting move given it had been doing well as US markets opened. I know a few players as “buy USD/CAD” as their trade of the week. PPI data tonight could be important. The kiwi has done best. After breaking higher last week it retested that break for two days and has now kicked on. It looks like traders are buying into the increased chance of a run higher to 70 cents possibly the 38.2% retracement level at 0.7077. Here's the chart.
Commodities
- WTI has reversed some of its recent gains overnight as the debate about what OPEC can do and the efficacy of its actions changed tack a little. Naturally when OPEC and Russia sit down there are a number of competing forces and antipathies that need to be put aside for the common goal of higher prices. Let’s face it what I wrote a year ago about the fiscal imperatives of the participants budgetary positions hasn’t changed that much as the group has worked to lower inventories and drive prices higher.
- But with Brent at $63, close to $10 above where it was a year ago, the chat is that the Russian resolve is waning. Certainly Exxon (NYSE:XOM) is seeking permission to increase output from Russia’s Sakhalin oil field and we know Russia’s oil execs are agitating to lift production. But it also seems that president Putin is the key driver of the nations involvement. So Russia is likely to stay in – the question on traders minds however is for how long.
- Also troubling traders – and perhaps why WTI was the big loser overnight – are concerns US tight oil is going to hit back with gusto and ramp up production. As I’ve written and said in my videos a lot recently there is an improved sense of return expectation from Shale oil firms. But with prices where they are many can hedge forward profitably and thus man the pumps.
- It’s all very messy and could get choppy this week – but with WTI up near the top of this channel last night’s reversal could be a sign this could morph into a “sell the fact” move post OPEC.
- And speaking of choppy, how about gold? Stuck in this range between the $1260/$1300 (rough) region it’s up and down quite a bit as short term traders dominate. Watch stocks though folks. I’m not making any chicken little predicitions. But if Asia stocks stay pressured there is a risk of leakage into bigger markets. Under that scenario gold, and the yen, will benefit.
- Copper hit $3.17 Fibo resistance Friday and has backed off overnight as worries about China – and the resistance – saw traders take some profit. That level is still the key. While it holds Copper is consolidating with a possible downside bias. But a break would open a run to year’s highs around $3.25.
Have a great day's trading.