Originally published by AxiTrader
Market Summary
A quiet days trade in European stocks and small falls on the S&P 500 and Dow Jones Industrial Average sets up a quiet start of the S&P/ASX 200 this morning after another poor day and week’s end Friday. How we’ll go in trade today is hard to tell although moves in the yen and gold suggest a little easing in risk aversion.
That said the big falls in copper, metals generally, and iron ore Friday will likely weigh on Australian stocks and the Australian dollar.
In other markets one of the big stories of the month is the fall in US 10-year bond rates and the flattening of the 2-10 curve to levels not seen since before last year’s Presidential election. It speaks to a lack of confidence in the economy, inflation, Fed rate rises, and the Trump agenda. And it speaks volumes as to why the US dollar is under so much pressure right now.
When that might change is hard to tell.
Here's What I Picked Up (with a little more detail and a few charts)
International
- Kim Jong-un held a party not a missile launch to celebrate the DPRK’s foundation day over the weekend. That's a good sign. But this morning the Korean News service KCNA has warned the US about any new UN sanctions that might be put in place. But the fact that Yonhap is reporting a UN panel says North Korea has been working with the Syrian's on chemical and missille weapons just shows this is a table stakes game Kim Jong-un is playing with implications for the entire globe.
- Canadian wage growth was higher in AUgust pointing +1.7% for from a year earlier. That's still low but accelerating and along with the bigger than expected 22,000 new jobs during the month puts another BoC hike on the table.
- Germany’s trade surplus narrows as imports were higher and exports lagged expectations.
- It was a similar story for Chinese trade data last week. But there was a big bounce in CPI and PPI last month data released over the weekend showed. CPI increased to 1.8% year on year in August from the previous months moribund 1.4% rate while pPI climbed to 6.3% from 5.5% previously.
Australia
- Another poor day for the ASX200 Friday with a 17 point, 0.3%, fall with the index closing at 5,672. Having lost around 1% over the week the only positive I can come away with is that the 200 index closed above the week’s lows. Overall however the market remains within the range it has been in for a couple of months now. Short term a break above 5,712/15 is necessary to take out this little down trend you can see on the chart below.
- It’s my favorite week of local data for the month with the release of the NAB business survey out tomorrow. Over recent months, and years really, this survey has continued to point to a resilience in the Australian economy that many thought impossible given the end of the mining boom and associated headwinds. And the strength we have seen this year which has taken the conditions and confidence levels to their highest levels since the GFC has underlaid the expectations of strong growth the RBA has consistently been projecting. A continuation of the recent strength will again reinforce the RBA’s positive outlook for the economy and underpin the Aussie dollar.
- We also have Westpac’s monthly consumer sentiment index out this week with the latest update out Wednesday. There has been a stark contrast between business and consumer outlooks over recent months. But as the national accounts showed last week that hasn’t stopped households from spending up and running down their savings. The big question is how long that can last if sentiment remains subdued.
- A big part of the answer to that question flows from the strength of the employment market and we get the latest update on the Australian jobs market Thursday. The market is expecting another 20,000 jobs to be added during August. More workers are not a cure for low wages growth. But they are an important salve to what would otherwise be a very depressing outlook for households on aggregate.
Forex
- The US dollar ended the week on the back foot as USD/JPY broke to new lows for 2017 and the Euro made fresh highs for the year. What the catalyst might be for a reversal of the dollar’s decline is hard to know right now given the rally in 10 year bonds and flattening of the bond curve back to levels not seen since before President Trump was elected speak to a clear downgrade of the US economic outlook.
- Likewise, comments from New York Fed President Dudley Friday that the two hurricanes – Harvey and Irma – complicate the outlook for rates and that it is too early to know when the next rate rise will come was an important departure from what’s been his usually hawkish bent. It’s another indication that things have become a little more complicated for the Fed as it seeks to normalise rates. It is still however expected to begin the operation to wind down – taper – its balance sheet – after this month’s meeting. The dot plots will certainly garner a lot of attention.
- That said the yen has weakened substantially this morning from Friday’s New York close. At 108.21 USD/JPY is up close to 0.4% in very early Asian trade. I’m not exactly sure what is driving the move but I’d hypothesise that perhaps the move is on the back of the fact Kim Jong-un threw a party not another missile test on Foundation Day over the weekend. It is only early Asia on a Monday though.
- Elsewhere the euro is at 1.2018, GBP/USD is at 1.3185 after a really solid week of rallies. Likewise the Canadian dollar end the week strongly and is at 1.2147 this morning. The kiwi is back at 0.7264.
- The Australian dollar is sitting at 0.8056 after a really strong move during Asian trade Friday took it above 81 cents to a high of 0.8124 where the Aussie ran into some heavy selling along with metals like copper and iron ore – both of which collapsed on Friday night. It has been a very strong run for the Aussie as fundamentals like commodity prices combined with a weaker dollar to drive AUD/USD to the strongest levels since May 2015. The pin bar on the daily charts looks awful from a technical perspective. It’s probably too early to call a top just yet given US dollar weakness. But with speculative accounts still very long there is room for a decent pullback toward 80 cents, then 0.7960, within an overall trend higher.
Commodities
- Copper fell through the $3.10 level I’ve been highlighting and promptly collapsed in what was a tough day for metals. It’s at $3.02 with support at $3.00 which is the trendline from where this leg started higher back in July.
- Gold made a high of $1357 on Friday before pulling back. It’s at $1346 this morning and looking like it might have made an interim top just below the target zone of $1360/65 I’ve been writing about recently.
- Crude fell out of bed again as Hurricane Irma approached and traders bet that there would be some serious demand disruptions. At $47.48 WTI is down around $1.70 a barrel compared to Friday morning’s levels. It respected the trendlines I highlighted last week which shifted the focus lower once Irma gave the excuse.
Have a great day's trading.