Originally published by AxiTrader
Market Summary
What a wild start to Wednesday.
As I sat down to do my research for this note around 4.10am the pound was under pressure, my GBP/AUD short looked in good nick and a brief scan of overnight moves suggested an interesting but fairly benign day.
That was until a telegraph hit the airwaves saying the EU and UK had agreed a bill – unspecified but within a range of €45 to €55 billion – on Britain’s exit. That saw the pound roar from 1.3260 to 1.3370 as the algo’s reacted. An unnamed UK official said they didn’t recognise that figure and sterling sold back off…but not that much as the FT seemed to confirm the deal. GBP/USD is at 1.3360 as I write and GBP/AUD has swung from a low of 1.7362 to 1.7590 in the past 90 minutes.
Soon after that we heard news the North Koreans had launched a missile that knocked USD/JPY lower before the passage of the US tax bill saw it bounce back toward 111.50. But it’s the pound and pound crosses which is the dominant story in forex markets this morning. Elsewhere euro is slowly slipping lower and is at 1.1858, the Aussie is back below 76 cents at 0.7596, the kiwi has dipped back to 0.6913, and the Candian dollar is at 1.2813.
And then of course a little before 7am we heard that the Senate Budget Committee had passed the Tax bill paving the way for a vote on the Senate floor this week. That’s meant that stocks in the US have powered higher and more than recovered their missile launch dip.
It was already a good night for stocks with an afternoon recovery on Asia’s bourses filtering into positivity in Europe and the US. The FTSE rose a little more than 1%, the DAX rose 0.46% and the CAC was 0.57% higher. In the US, it’s new record highs for indexes with the S&P 500 currently (7.19am) up 0.83% to 2,623, the Dow Jones Industrial Average 1.12% higher at 23,841 and the Nasdaq 100 lagging with a 0.2% gain to 6418.
As a result, and despite the drag of miners and metals, SPI traders have added 43 points to last night’s close with the price trading at 6032.
On commodity markets there has been more weakness in oil with concerns about Russia’s commitment to the production agreement gaining currency. Both Brent and WTI are well off their lows however at $57.89 and $63.48 respectively off about a quarter of a percent. Metals markets were lower as well, but materially so. Copper has lost 2% to $3.06 a pound, nickel collapsed close to 4%, zinc and lead were also lower as were iron ore futures overnight.
Gold is largely unchanged at $1294. And the US 2-10 curve is stabilising around 57 points.
On the day today, we get Japanese retail sales, Singapore import and export prices, before UK mortgage and lending data as well as a raft of Euro area business and consumer confidence data. German inflation will be important as will the next read of US GDP and PCE as well as more Fedspeak including chair Yellen.
Here's What I Picked Up (with a little more detail and a few charts)
International
- To the tax bill first. Stock markets are a bit excited on this because Senators who could kill the bill on the floor of the Senate are on the committee which just passed the plan to go to a vote. That suggests to traders there is now a greater chance of the bill actually passing the Senate. We’ll see on Thursday I believe. Then it will just be a reconciliation between the Senate and House bills. No easy feat, but one you’d be fair in assuming is in the GOP’s interests to achieve.
- Incoming Fed chair Jerome Powell fronted his nomination hearing overnight and sounded very much like he is both a safe pair of hands and a continuation of the Yellen and it’s approach to interest rates. Like Yellen last week he said the Fed isn’t really sure if the factors keeping inflation low are transitory after all and said that while the case for a December hike is strong that the Fed remains data dependant and the weak inflation at present means the Fed “can afford to go more slowly” on raising interest rates if necessary.
- BoJ governor Kuroda appeared to try to put some context around the recent comments from his bank about the costs of current policy and the debate that is occurring yesterday. He said it was a “theory that helps us understand the appropriate shape of the yield curve”. He also said that current policy wasn’t hurting banks. Elsewhere Japanese prime minister Shinzo Abe said he expects “the BoJ to promote bold monetary easing to achieve 2 percent inflation”. He did add however that “a positive economic cycle is falling in place. It's true Japan has yet to achieve 2 percent inflation”.
- While on Japan it is worth noting that JPM reckons the BoJ will increase its 10-year target rate in two 25 point steps during 2018. That’s in keeping with the discussion I’ve been having recently about the prospective change in BoJ policy that appears to be looming.
- See more on oil below But the OPEC committee that assesses and recommends policy prescriptions to OPEC said overnight that the current cuts should be extended until the end of the year.
- DATAWATCH: US consumer sentiment rose 3.3 points this month to 129.5 according to the Conference Board. That takes it back up near the recent 17 year high. Put that together with the stellar results for Black Friday trade and it’s a clear indication that US consumers seem to be fairly comfortable right now. Case Shiller house prices rose 6.2% year on year in September an acceleration from August’s 5.5% result. Canadian PPI was up 1% in October which saw the year on year rate rise to 1.8% while in Germany the Gfk consumer confidence printed unchanged at 10.7.
Australia
- It’s going to be an interesting day on the ASX today. With a very solid lead from offshore traders are likely to be in a pretty good mood and look to take prices higher. But the question, and it’s a decent one given the influence of the market cap of the miners and energy stocks is whether the poor performance of metals and oil overnight – and concerns about Chinese growth – will derail this otherwise positive outlook.
- It’s an interesting question and one that’s difficult to know straight up. My sense is some of that move overnight was catch up to the late Asian rally – with the weakness acting as a handbrake during out day – as well as the positivity from overnight.
- The best guide is probably the charts and on that front the SPI suggests the 6,025/30 region is resistance. A break above their would be a positive sign for the physical market that it will kick on up and through 6010. (Please note the SPI leapt to 6030 after the US tax bill passed through committee – so its trying to break higher).
- The AFR reports this morning that the OECD says the RBA should raise rates despite low inflation. The organisation is upbeat about the outlook for growth and unemployment in the couple of years ahead and as aresult says that stimulus should be “gradually withdrawn”. It thinks the preconditions for a hike will come as soon as H2 2018 and says higher rates can “ease pressures on house prices and will reduce the threat of the build-up of other financial distortions," in Australia.
- One thing the OECD says is that Australia should join the trend toward higher rates as other central banks withdraw accommodation. But that is something that governor Lowe has expressly addressed a couple of months back saying just because other CB’s are moving rates doesn’t mean the RBA will too. But, if the RBA’s forecasts of growth are right there is every chance it starts to move in that direction late next year.
Forex
- GBP is the big story overnight. It was lower initially over concerns about the Brexit negotiations, stories that the EU had given the UK a deadline of next week, and concerns about how the issue of a “hard” border between Northern Ireland and the Republic of Ireland could be resolved. So the Pound and GBP crosses have had a wild ride with bearishness giving way to bullishness on the Telegraph story.
- So it’s been a wild ride for the Pound and it probably stays bid now unless or until bad news on Brexit hits the airwaves. A break above 1.3390/1.34 would really kick things off. It’s at 1.3364 after the US tax bill.
- Euro is lower as a result of selling via the EUR/GBP cross and the fact that in and of itself the charts suggested that EUR/USD was likely to drift back to and likely through the 1.1860 level. 1.1805 is the 38.2% retracement level of the recent rally from the mid 1.15’s and is the likely first target – its at 1.1843 presently.
- The yen remains at or around 111.00/50 while for the commodity bloc it has been a challenging night. The Canadian dollar is higher as the BoC released its financial stability review and governor Poloz appeared to wax a little dovish noting that the bank had to wait and see how its recent rate hikes effected policy. USD/CAD is up 0.35% and testing resistance at 1.2811
- The Aussie is back below 76 cents having traded a range of 0.7587 to 0.7619. It’s actually remarkable that the Aussie is doing so well given the moves in metals and copper in particular. The New Zealand dollar has had a poor day, reversing off a high of 0.6945, it’s at 0.6913.
Commodities
- Traders are trying to talk themselves into the risks around the OPEC meeting. I have to say I see them too. Given the agreement doesn’t expire for another 4 months adding an additional 9 months on that to the end of 2018 seems unnecessarily eager given the market does seem to be rebalancing and certainly prices have moved substantially higher in the past few months. A 9 month extension to the end of 2018 does appear to have OPEC consensus but traders are worried about Russia’s commitment. We’ll know Thursday. As I noted above WTI and Brent are off a little.
- Gold is becalmed at $1295 and didn’t react to the North Korean missile launch. To be fair there was nary a flutter in real terms in other markets too. But it again highlights that gold lacks a narrative at present and is trading in a $35/40 range at the moment.
- Copper dropped back in the wake of the overall metals sell-off. IN MT4 terms the level to watch is still the $3.06/07 level which is the channel it broke out of.
Have a great day's trading.