Originally published by AxiTrader
Market Summary
The Nasdaq 100 was down again Friday (-0.22%, 6151) ending the week with another drop. But that tech stock weakness didn’t drag the broader market into the red with the Dow Jones Industrial Average (+0.11%, 21,384), the S&P 500 (+0.03%, 2453), and European stocks (FTSE +0.6%, DAX +0.48%, CAC +0.89%) all managing to finish in the black.
That’s helped SPI traders mark prices another 9 points, 0.16%, higher over the weekend after the ASX 200 closed up 11 points, 0.19%, at 5,774 on Friday.
On foreign exchange markets the US dollar’s rally faltered, undermined by more weaker than expected data Friday which drove the Citibank Economic surprise index to its lowest level in 6 years. I’ve already written this column - CHARTS: Data Trumps the Fed as the US dollar struggled for traction – to explain.
The washup from a US dollar perhaps trying to bottom but struggling for traction is that Euro is back above 1.12 this morning, USD/JPY is under 111, sterling is at 1.2750, the Canadian dollar is back down near 1.32 against the US, AND the Australian dollar is comfortably ensconced above 76 cents.
And the weaker data flow has driven the 2-10 curve in the US flatter once again at just 80 points as the 10’s ended the week at 2.157% - below 2.2% for only the second week since president Trump was elected.
On commodity markets oil was a little higher but still weak at $44.74 in WTI terms as the price of crude racked up its fourth week of losses. Gold is at $1253, under pressure and below support while copper dipped again ending the week back at $2.56.
Looking ahead it’s not the biggest week on the calendar in Australia with the release of New Motor vehicle sales today, house prices for the first quarter and the RBA minutes tomorrow. Westpac’s leading index of growth on Wednesday won’t get much market attention but I’ll be watching to see what Bill Evans says about the outlook for the economy.
Globally it's similarly quiet with the release of US crude and gasoline inventories the potential big mover for the week. We also get the preliminary reads on Markit PMI’s for the month.
Here's What I Picked Up - in a little more detail
International
- BREAKING NEWS THIS MORNING: Iran has launched a missile strike in Syria at targets it says were responsible for the recent attacks in Tehran. This is no small thing given all the players in Syria and the current Qatari isolation issue in the gulf. Something to watch for oil, gold, and the yen.
- US data undermined the US dollar’s rally and the Fed’s credibility with the market Friday. The University of Michigan consumer sentiment survey printed a preliminary 94.5 for June compared with consensus of 97.1 with a drop in current conditions as well. Housing starts in the US were also out and fell to an 8-month low after starts dropped 5.5% in May. Building permits also dropped 4.9%. The stall in housing activity reflects a slowdown in growth and it threatens the Fed’s expectations that this recent weakness – now stretching for months btw – is only transitory.
- And speaking of fed expectations president Kashkari of Minneapolis and Kaplan of Dallas both Friday highlighted the risks to the outlook. Kashkari, who dissented for the second time in a row from last week’s rate hike, wrote again about why he dissented but for me the key was that he told Reuters in an interview that others agree with him but won’t yet dissent. “I wish other people were joining me in my dissents…I think that there's more sympathy for my views, but maybe people aren't ready to take action."
- Dallas Fed president Kaplan said the rate rise was a close run thing for him. “In this job you make trade-off decisions; I think the fact that inflation of late has been more muted, for me, made me weigh those trade-offs much more carefully,” he said.
- The party of the French president appears to have won a resounding majority in the second round of the parliamentary elections Sunday.
Australia
- The local market is in a state of flux at the moment. Just like the competing forces in the economy which showed last week’s business survey data was solid but consumer sentiment was far more circumspect as household’s worry about their finances, so the forces on the ASX are competing.
- The price action last week with a selloff, strong bounce, and then reversal suggest the bulls and the bears are battling over valuations for the local market. That’s both internally based on company metrics and the outlook for the economy but also against other markets across the globe.
- There are virtually no economic catalysts this week so it will be about price action here and offshore. In that respect I have a tentative trendline in the ASX physical market after last week’s move which comes in at 5,830 this morning. A break below Thursday’s low at 5752 might ignite some selling.
- And while I said there is virtually no data this week I will be very interested in what the RBA minute reflect about the outlook for the economy. I’m assuming they’ll be relatively upbeat.
Forex
- The US dollar's rally stalled Friday as the weaker than expected data undermined the Fed policy divergence lead rally. The US Dollar Index is back at 97.14 after failing at overhead resistance on Friday.
- I have written a full piece on what’s going on for the US dollar this morning highlighting the impact of the collapse in the Citibank Economic surprise index to -78.6, a 6 year low, and the low level of US 10-year bonds is having on the US dollar. Spoiler alert – it’s a drag!
- The washup is that the euro is at 1.1203 this morning after running down to a low of 1.1130/35 late last week. That level is roughly the top of the old uptrend channel. It’s still the case that this and the 1.1100/10 region appear to be solid support for now.
- Sterling is stuck near the top of the past week’s range after the Bank of England surprise everyone with a 5:3 split vot to leave rates on hold. But while GBP/USD tested up to 1.28 Friday the reality of the challenges the economy faces as Brexit negotiations begin has kept the bulls at bay for now.
- USD/JPY had been higher Friday after the BoJ signalled even though the economy looks like it is picking up and it thinks inflation will pick up it is keeping its foot on the monetary accommodation pedal. I was taken by the bank's comment that amid these assertions “inflation expectations have remained in a weakening phase”. But USD/JPY is at 110.86 this morning off the high around 111.40 Friday as the US data weighed.
- Looking closer to home the Aussie is above 76 cents at 0.7619 this morning. Friday I wrote a column with the headline “The Australian dollar's rally is over if the US dollar is on the march” but as I’ve highlighted above that march fell apart Friday night. But it is also worth noting that while US data has been disappointing Australian data has confounded the doomsayers with some solid prints above expectations.
- That’s driven the AUD Citibank economic surprise index to 61.6 which is the highest of the major version of this index I watch each day. 0.7635/40 remains key topside resistance for the Aussie with support at 0.7565.
Commodities
- The Baker Hughes rig count showed another rise as US oil firms added another 6 rigs last week. That’s 22 weeks in a row that oil rigs have been added, a record run. But the slowdown in the rate of new additions does suggest that with oil at the bottom of the recent range the animal spirits of producers are being tempered. Even just a casual observance of the energy news would show that the conversation is turning a little from OPEC and its production cut deal efficacy to US production and its sustainability – or growth – at these levels.
- That chance in rhetoric neatly fits with WTI testing the bottom of the current downtrend channel. It’s also futures roll week which could make prices a little scatty. Anyway as we sit this morning WTI is at $47.74 and Brent is at $47.37. A break of $45.50/70 – the steep downtrend line of this 4-week fall – would be the first signal that a recovery is underway.
- Oh and it’s worth noting that Reuters reports aging supertankers are now being used to hold excess crude supplies off Singapore.
- Gold closed the week below its 200 day moving average for the first time in a month Friday. At $1,253 prices are down and under the $1,255/58 region I identified as key support recently. $1,245, then $1,233 are the next levels of support. But while gold remains under pressure the fact the US 10 year rate remains depressed and the data is dragging on any Fed induced US dollar rally is a salve for whatever ails gold.
I mentioned a narrative shift above in talking about oil and it seems that the story around copper has subtly changed recently as well. The reality is, at least in price terms, copper is becalmed at the moment in the mid-$2.50 cents a pound region. Chinese housing price data today could be interesting if it gives a sense of where the world’s biggest copper user’s economy is at.
Have a great day's trading.