Aussie dollar under pressure

Quick recap

Stocks are showing signs they may have peaked as psychology shifts a little. That's hardly surprising given oil's continued collapse and after such a solid run together with the recent loss of momentum. On forex markets the US dollar was a little stronger but teh Aussie was the standout loser as traders bet the RBA will cut today.

What You Need To Know

International

• It looks to me like US stocks might have put in a top, with the onus now on data and events to support the rally rather than defeat it. At least that’s the feeling that seems to be creeping into the notes and comments I’m reading. One example of this is what Art Hogan, chief market strategist at Wunderlich Securities in New York told Reuters. “The economic data until last week had been pretty decent but since the (U.S.) GDP numbers came out, we're seeing holes in the argument that the second half of the year is going to be better…At these valuations, the market is desperate for a catalyst to move higher,” Hogan said.
• The price action in the S&P 500 is supportive of this thesis as well. Tight ranges like we have seen in the S&P 500 for the past few weeks don’t last indefinitely. So last night's new all time high in the S&P at 2178.29 has reversed a little and the index is at 2169.86 at 5.21am. 2159 is the level to watch a break would be the signal I’m looking for to go short. 2183/85 is the level to watch, and resistance, topside.
• Naturally this has implications for the ASX200 and other stock markets but here is the S&P chart from MT4.

• US data last night was a little mixed but supports Bill Dudley from the Fed’s cautious approach to the outlook even if he does think rates might rise.
• The Bank of England must cut at this week’s meeting. It’s devastating to watch the fruits of David Cameron, George Osborne, and Mark Carney’s pre-Brexit scaremongering take hold on British business and consumers. The combination of Sterling at 1.32 and Brexit should to a certain extent offset each other but Britain is talking itself into a recession it seems.
• Last night the The Markit/CIPS UK manufacturing PMI fell to 48.2 in July from 52.4 in June, below an initial "flash" reading reported in late July of 49.1 and its lowest since February 2013. This adds to the CBI surveys of industry and retail sales and a survey of accountants showing confidence plunged. Reuters reported that the output index fell to 47.8 in July from 53.6 in June, its lowest since October 2012, while new orders - which grew robustly in June - suffered their sharpest turnaround since 1998 and fell at their fastest rate in over three years.
• So Britain needs a circuit breaker and that has to be a BoE rate cut and then some positive talk from Carney not the sad sack he’s been for the last few months. I’m a behavioural finance and economics guys and I strongly believe the economy exists in peoples minds and confidence is a key part of activity. Without confidence people don’t spend and invest and the economy falters.

• Elsewhere in Europe, save for Germany, the PMI results looked a little crook. Eastern Europe has stalled a little, and the rest of the zone is in a spot of bother according to Chris Williamson Markit chief economist. After EU PMI fell to 52 from 52.8 last Williamson said:

“The problem is that growth is looking increasingly lop-sided, which will worry policymakers and add to calls for further stimulus from the ECB… Dig deeper beyond the headline numbers and more worrying pictures appear. Expansions in output and employment are clearly being driven to a large extent by surging growth in Germany, while growth has almost stalled in both Italy and Spain, and contractions are being seen in France and Greece.”

• But maybe it’s not all bad news Gavyn Davies writing in the FT is wondering if the global economy might finally have reached escape velocity based on the latest Fulcrum nowcasts of global activity. “The latest estimate shows global activity expanding at an annualised rate of 4.1 per cent, a marked improvement compared to the low point of 2.2 per cent recorded in March, 2016,” he wrote.

Australia

• RBA day today. We’ll know the results of the will they won’t they argument at 2.30pm. My view is they don’t need to cut. But I have been persuaded by Jo Masters from the ANZ that because the risks of a policy mistake are so low as to be negligible, and because it might help cap the Aussie dollar’s potential rally, that the Bank should cut today. Additionally, I think it clears the deck for Phil Lowe to then put his own stamp on the RBA once governor Stevens moves on.

• On stocks like the US the chances the high is in are, well, high. Yesterday I said I didn’t want to buy the ASX up whee it was/is and I retain that view. Not uber bearish by any stretch but yesterday’s high of 5611 will do for a while now.
• That’s something SPI traders seem to agree with. After the ASX200 physical finished up 25 at 5587 the September SPI futures contract is down 28 points at 5518 at 5.42am. The miners are off a little in New York Trade, banks like Wells Fargo (NYSE:WFC) and Citi are also down which suggests two big drivers of our market might be under a little pressure today.
• Of course an RBA rate cut might embolden the bulls intraday – but my view on the local market will remain unchanged in a medium term basis.

Forex

• The US dollar had a slightly better day yesterday, or at least it stopped falling. But it is universally stronger even if only a little. USDJPY is at 102.38, Euro is at 1.3182, GBPUSD is at 1.3184. Some of that might be the rise in US rates with the 10 year back above 1.50% this morning.
• But some of it is a reflection that Friday’s move was a very solid fall for the US dollar and a pause will refresh the bears note the proximity of the 38.1% level just below markets.

• For the AUDUSD it’s clear that weakness in commodity prices overnight and the proximity of the RBA meeting today is weighing. After popping above 76 cents at one point yesterday the Aussie is back at 0.7537 this morning. Assuming the RBA cuts, support is at 75 cents and then 74 cents. If it doesn't hang onto your hat - 0.7640/70 and if that breaks it 78 cents not too far behind.

Commodities

• I got off the bearish horse too early yesterday and Crude collapsed again overnight with WTI and Brent down 3.82% and 3.19% respectively. It’s all about supply again. I saw a Reuters report that said their OPEC survey showed a new record output yesterday but thought that was baked into the cake. Apparently not. Also comments from the Iranian oil minister that supply overhang was still there but the market was moving into balance read hollow given inventory moves recently and the Reuters survey.
• And I saw an article, which I cant find, which said Texas Frackers have taken it up to the Saudi’s and shown with tech advances they can compete at almost any price. Cue the increase in rigs in the US.
• WTI has broken the 200 day moving average which might change plenty of views about the outlook for oil. Anyway, here's the chart.

• Gold Gold is up again suggesting that there is some uncertainty out there. It’s siting at $1354.
• Copper is off at $2.19 and has actually broken its 2 month uptrend. Watching for a break of $2.18 which would get the chartists busy.

Today's key data and events (all times AEDT)

• Australia - Building Permits (MoM) (Jun), Building Permits (MoM) (Jun), Imports (Jun), Exports (Jun), Trade Balance (Jun) (11.30am); RBA Interest Rate Decision, RBA Rate Statement (2.30pm); RBA Commodity Index SDR (YoY) (Jul) (4.30pm)
• New Zealand - RBNZ Inflation Expectations (YoY) (Q3) (1pm); GDT Price Index (n/a)
• China - Nil
• Japan - Monetary Base (YoY) (Jul) (9.50am); Consumer Confidence Index (Jul) (3pm)
• Germany - Nil
• EU - Producer Price Index (MoM) (Jun), Producer Price Index (YoY) (Jun) (7pm)
• UK - PMI Construction (Jul) (n/a); 30-y Bond Auction (n/a)
• Canada - RBC Manufacturing PMI (Jul) (11.30pm)
• US - Personal Consumption Expenditures - Price Index (MoM) (Jun), Personal Spending (Jun), Core Personal Consumption Expenditure - Price Index (YoY) (Jun), Personal Income (MoM) (Jun), Personal Consumption Expenditures - Price Index (YoY) (Jun), Core Personal Consumption Expenditure - Price Index (MoM) (Jun) 910.30pm); Redbook index (YoY) (Jul 29), Redbook index (MoM) (Jul 29) (10.55pm); ISM New York index (Jul) (11.45pm); 4-Week Bill Auction (1.30am); Total Vehicle Sales (Jul) (n/a); API Weekly Crude Oil Stock (6.30am)

Have a great day's trading

Greg McKenna

Chief Market Strategist AxiTrader