Originally published by AxiTrader
Key Takeaway
US stocks clambered back into the black at the close of play Friday before today’s President’s Day holiday. Bonds rallied a little and the US dollar caught a bid as French political uncertainty seemed to increase the chances of a Marine Le Pen victory and the Dutch election got into full swing.
The Aussie is lower after Friday’s recovery above 77 cents proved short-lived. But the Yen remained firm even against the stronger dollar which weighed on most assets including gold.
The second last week of the month is usually a little quieter on the data front which will elevate the importance of the Markit flash PMI’s, UK and German GBP, German IFO, and Fed minutes. Here at home the flow of partial indicators for Q4 GDP, to be released March 1, begins with construction work done, and CapEx
What You Need To Know
- S&P 500 +4 (0.2%) 2351 (7.25 am Sydney)
- Dow +4 (0.02%) 20,624
- Nasdaq 100 -23 (0.4%) 5838
- SPI 200 +5 (0.1%) 5760
- AUDUSD 0.7668 -0.3%
- Gold $1235 +0.2%
- WTI Oil $53.40 +0.0%
International
- Stocks lifted into the close in the US for marginal gains with all the action really at an individual company level. That was especially the case with the Kraft/Unilever tie up capturing traders attention on both sides of the Atlantic (news this morning is Kraft Heinz Co (NASDAQ:KHC) has withdrawn its offer). So at the close of play the Dow was up just 4 points to 20624, the S&P itself rose 4 points – although that’s almost a 0.2% gain rather the non-needle moving rise on the Dow. The S&P finished at 2351, a new record weekly close. The Nasdaq rose 0.41% to 5838.
- Bonds in the US finished at 2.41% which is a pretty solid recovery/rally after the false break higher on the week. It’s also a very solid move lower given that Janet Yellen, Bill Dudley, and Stanley Fischer were all pretty strong in calling for higher rates in the US. Even to the extent that March is a live meeting.
- The French election has become a whole lot more interesting with reports the two left-wing candidates – Hamon and Melenchon – are discussing how they can co-operate. Most pundits see this as remote given policy differences but the conventional wisdom is such a move would take votes from Emmanuel Macron, potentially vault either Hamon or Melenchon into the second round and thus push the door a little bit further open to a Le Pen victory. French bond rates rose after the new broke.
- China has banned coal imports from North Korea - a move which will cut the nations exports in half – in a signal that Beijing is of a mind to rein in its wayward neighbour. That the move is in line with UN treaties shouldn’t underestimate the signalling effect of this decision to the globe – or likely president Trump. China said it’s time to “break the negative cycle on the nuclear issue” because backing North Korea into a corner just means the chase for nuclear capability is intensified.
- Reuters estimates the PBOC’s net sales of foreign exchange fell to a five-month low in January of $30.42 billion. On Friday China’s FX regulator, SAFE, said Cross-border capital outflow pressures in China have eased so far this year.
- Speaking of China, and its potential Olive Branch to president Trump, the US Navy said Saturday that a carrier strike group including Nimitz-class aircraft carrier USS Carl Vinson, began routine operations in the South China Sea.
- On Sino-US relations it’s worth noting that a statement released after a meeting between Chinese Foreign Minister Wang and US Secretary of State Rex Tillerson said “China and the United States have joint responsibility to maintain global stability and promote global prosperity, and both sides' joint interests are far greater than their differences”.
- On the data front Friday the only real release of note was UK retail sales for January. The print of -0.3% was a surprise to forecasters who had predicted a rise of 0.9% after December shock 2.1% fall. That dragged the YoY rate down to 1.5% from last months 4.1%. It also gives credence to concerns that Brexit saw a pull forward of demand as consumer sought to avoid price rises associated with the fall in the pound.
- Speaking of Britain, former PM Tony Blair has tried to deal himself into the Brexit play calling on Britons to “rise up” to try to halt Brexit. With the Lords starting it’s debate this week it seems too little too late. But it keps Brexit in the headlines…something that can weigh on sterling. Especially after that awful retail sales report.
- Is President Trump making stuff up intentionally? Let’s give him the benefit of the doubt, but a comment over the weekend peeved the Swedes after he said there had been a terrorist attack. Maybe he meant the attack in Pakistan which happened at a shrine to a Sufi saint in Sehwan. :S
- On another topic after president Trump said the press were the enemy of the American people his chief-of-staff said in an interview over the weekend that he believed in the 1st amendment.
Australia
- The S&P/ASX 200 dipped 10 points to 5805 as the market drifted without any big catalysts to drive the market. Futures traders on Friday took the March SPI up 5 points in the hope it will be a better day today. Only two sectors on the S&P 500 were actually lower. But the fact they were basic materials and energy means these sectors could weigh on the local market today. Naturally gold down a little might hurt these miners but the Aussie dollar fall is a safety net.
- The ANZ Banking Group (AX:ANZ) was higher and the Commonwealth Bank Of Australia. (AX:CBA) closed above $85 for it's highest close since December 31 2015. I'm looking at teh CBA as the bellwether for OZ stocks. So the question traders will be asking themselves is whether everything is fully priced and baked into the cake. or, as the RBA suggests is the looming (hoped maybe) acceleration in growth a new paradigm in the economy and thus an opportunity for share price appreciation?
- As usual, it's worth noting the ASX can rise as the global equity rally continues. But it's also clear that the S&P 500 is a key driver. So any pullback will be felt here in Australia.
- Looking at the week ahead I’ll be watching the partials as they come out to see where GDP is going to print on March 1st. That’s going to be critical on a number of fronts. RBA credibility, the actual level of growth as we ended 2016, the prospects that the NAB survey is right and so on…
Forex
- Friday was a good day for the US dollar on balance. But the fact the US Dollar Index, and euro, had an inside day suggests traders are still not sure which way to go just yet. You’ve seen my head and shoulders picture over the past few days and it seems to me the chances of lower levels are still high. But the key to everything is you can’t get too bearish on the US dollar unless or until 99.20/50 breaks in index terms.
- Speaking of the euro it’s worth noting that German Chancellor Angela Merkel echoed finance minister Wolfgang Schaeble’s recent comment that the Euro was too low for Germany. Merkel said:
- “We have at the moment in the euro zone of course a problem with the value of the euro. The ECB has a monetary policy that is not geared to Germany, rather it is tailored (to countries) from Portugal to Slovenia or Slovakia. If we still had the (German) D-Mark it would surely have a different value than the euro does at the moment. But this is an independent monetary policy over which I have no influence as German chancellor.”
- Against the yen though the US dollar remained pressured. This is somewhat incongruous when you think about and consider the comments from Janet Yellen and her deputy last week about interest rates and the US economy and then contrast them with the Japanese economy and the BoJ’s efforts to keep rates low. We’ll see how this plays out but there is a clear retest of the previous downtrend as CFTC data shows short Yen positions are being mildly pared.
- The Australian dollar was back above 77 cents on Friday but closed the week in the high 0.7660’s region after making a low of 0.7655. It’s not an appalling effort. But the bulls will be concerned by another failure above 77 cents. That just reinforces the range top – but also is a big psychological hurdle for the bulls. IT looks like the AUD/USD needs a weaker US dollar to head higher.
- That said CFTC data showed increased positions in the dollar/commodity bloc currencies with speculators increasing their bets on the Aussie, CAD, and Kiwi.
- Watch sterling…it’s breaking down and starting to look ugly on the charts. Retail sales from Friday will embolden the bears because it suggests the post-brexit strength might be a mirage. Q4 GDP Wednesday will be huge.
Commodities
- There is a lot of chat about the possibility that gasoline stocks in the US suggest that the rally in crude oil is running into a strong hurdle. You know I wrote last week that if OPEC is talking about extending their production freeze it’s not because of success in achieving its goals– just the opposite. That hasn’t stopped the speculators from increasing their net long again to another record in the latest CFTC data.
- The reality is WTI, and Brent are stuck in a range. But a break is going to be huge if and when it comes – as it eventually will. Friday, a day’s trade before the expiry of the Nymex contract, WTI closed at $53.40 while Brent finished at $55.81.
- Copper is interesting at the moment. We know Escondida is closed, Freeport-McMoran has issues in Indonesia and now Anglo American (LON:AAL) says it has permit problem in Chile and will need to shutter its El Soldado mine. Yet Copper is languishing at $2.70 Friday. It has to stay above $2.66 if it’s to avoid a big fall. But all these production disruptions might have usually seen prices higher.
- Gold retest just under the recent $1245 high with a $1243.75 peak Friday. That suggests this level is now the one to watch for a push higher, maybe even as high as $1270. It looks like we have a $25 range with either side important to the outlook.
Today's key data and events (all times AEDT)
- Australia - Nil
- New Zealand - Producer Price Index - Output (QoQ) (Q4), Producer Price Index - Input (QoQ) (Q4) (8.45am)
- China - Nil
- Japan - Exports (YoY) (Jan), Adjusted Merchandise Trade Balance (Jan), Merchandise Trade Balance Total (Jan), Imports (YoY) (Jan) (10.50am)
- Germany - Producer Price Index (YoY) (Jan), Producer Price Index (MoM) (Jan) (6pm); German Buba Monthly Report (10pm)
- EU - Consumer Confidence (Feb) (9pm)
- UK - Rightmove House Price Index (MoM) (Jan), Rightmove House Price Index (YoY) (Jan) (11.01am); CBI Industrial Trends Survey - Orders (MoM) (Feb) (10pm)
- Canada - Family Day (24h); Wholesale Sales (MoM) (Dec) (12.30am)
- US - President's Day (24h)
Have a great day's trading.