Markets Quiet With US Out, But Still Waters Run Deep

Originally published by AxiTrader

Key Takeaway

Without US markets to drive them traders took the opportunity to do nothing for the most part with European stocks mostly flat.

At least at a macro level anyway. Unilever (LON:ULVR) was a big mover after Kraft Heinz Co (NASDAQ:KHC) walked away from its bid for the European giant. But at an index level European bourses were largely unmoved.

Forex markets were relatively quiet although the US dollar is a tiny bit weaker against the pound and Aussie but a tiny bit stronger against the yen.

On commodity markets oil is creeping higher one day before the close out of the front Nymex contract, gold is at $1238 and copper traders tested support before bouncing back as supply concerns once again hit the headlines.

And China tweaked it’s yuan fix process.

What You Need To Know

• S&P 500 Closed 2351 (7.25 am Sydney)
• Dow Closed 20,624
• Nasdaq 100 Closed 5838
• SPI 200 -5 (0.1%) 5743
• AUDUSD 0.7683 +0.18%
• Gold $1238 +0.2%
• WTI Oil $53.69 +0.54%

International

• Russia’s longstanding ambassador to the UN Vitaly Churkin has died in New York.

• New polls in France released overnight show that Marine Le Pen is still way behind but closing on her rivals Emmanuel Macron and Francois Fillon. Reuters reported that “A poll released on Monday showed Le Pen 16 points behind centrist Emmanuel Macron, down from 20 points previously for a potential second-round run-off scheduled for May. Le Pen was 12 points behind conservative candidate Francois Fillon, from 14 points previously”.

• It’s still a big ask for her to win the second round of the presidential election, but the news was enough to drive the spread between German and French bonds (green line) back toward 4 year highs and put a little weight on the euro.

• But it’s worth noting police have raided Marine Le Pen’s offices on the back of an investigation about her spending of EU money according to reports this morning. We’ll see if it hurts her run in the way that it derailed François Fillion’s march toward the Elysee Palace

• Speaking of bonds Japanese 30 year rates hit 0.92% yesterday – a one-year high.

• German Finance Minister Wolfgang Schaeuble said overnight that Germany will fight protectionism. “In a globalised world, globalised economic protectionism is not successful. We will fight against any protectionism”, he said.

• Also in Europe, Greece continues to simmer as new bailout talks are ongoing.

• Donald Trump’s executive team continues to put out fires he started. Last night in a flying visit to Iraq Defence Secretary Mattis said that the US is not in the country for their oil. It was reference to something the president had quipped a few week’s back about the US taking Iraqi oil. US vice-president Pence was also being conciliatory telling European leaders that the president and the US supports the EU and NATO.

Australia

• It was a bit of a lacklustre day on the ASX yesterday with the S&P/ASX 200 down 11 points, 0.2%, to 5805. Naturally lacklustre is a relative thing with the index above 5800 still around 21-month highs. As with indexes all over the world the move in the broader index is the summation of some decent moves in individual stocks. I’m convinced active management is back as correlations breakdown in a macro sense and individual stock picking shows some real Alpha generation ability. Just look at Brambles Ltd (AX:BXB) and Worley Parsons Ltd (OTC:WYGPY) big falls yesterday. Anyway. that’s for another day.

• Overnight futures traders have continued that lacklustre feeling with the SPI 200 contract down 7 points to 5745. Metals did better in the past 24 hours so that sector should do okay today and energy is a little higher too.

• As readers know I’ve been saying the local market needs the US rally to continue. But even just a casual look at the overall price action suggests the ASX200 may need a rest with a sideways consolidation for a while or a pullback.

• On the fundamental front today we get the latest read of the ANZ weekly consumer confidence survey and the RBA minutes. The latter is likely to reflect the very upbeat message that the RBA governor has projected a number of times this month and which was reflected in the bank’s quarterly Statement on Monetary Policy.

• That could support the Aussie dollar, bank stocks (higher rates => increased margin) and consumer stocks.

Forex

• Not a lot going on in the world of forex. That’s especially the case when it comes to the majors. I saw a rport about the 0.35% rally in sterling being the best move in so many weeks. It just tells how quiet it has been lately and also how tight the range has been for GBPUSD of late.

• On sterling though the release of the CBI industrial orders survey was a positive beat with a print of 8 against a consensus bet of +3. The next few months are going to be very interesting on the UK economic data front as the natural positive British industry gets from Sterling in the low 1.20’s get juxtaposed with what could be a material slowdown in the consumer sector. Wednesday’s Q4 GDP is going to be interesting.

• Elsewhere the euro is hardly changed at 1.0612, the yen has lost about 0.2% with USDJPY up at 113.09 despite the move higher in Japanese bonds.

• The Australian dollar is sitting at 0.7682 with an overnight high of 0.7690.

• Of note the Russian ruble, Brazilaian real, South African rand, and Korean won are all stronger against the US dollar this morning. We should watch this space as recent moves suggest risk money is going back into emerging markets.

• China adjusted the way it calculates the mid-point of the yuan reference rate it publishes each day. It’s an arcane change but obviously done for a reason but CFETS said it was changing the reference period from the previous 24 hours to 15 hours between 830 GMT and 23330 GMT.

Commodities

• It’s the day before the close out of the front Nymex Crude contract so I’m wary, but oil prices climbed a little higher overnight. Brent is up 0.65% to $56.17 after S&P Platts said it was going to add Norwegian Troll to the basket from 2018. WTI is up around half a per cent in very thin trade to $53.69.

• As I highlighted yesterday traders have driven a huge increase in open interest and in net speculative longs in WTI over the past few months. That suggests they believe in OPEC’s ability to drive prices higher. But I heard it put another way in a Reuters piece this morning that I thought was a neat way to summarise the build in positions and price rises. Traders see OPEC as providing a put option and are buying because they see OPEC tempering any price falls. That’s a dangerous strategy as anyone who was trading the EURCHF or USDCHF in the run up to January 2015 will tell you.

• For now WTI is in a wide $5 range and only a break would material move traders heart beats.

• Gold remains in this $1219/20-$1245 range. It’s up a couple of bucks overnight to $1238. While I mostly trade gold on the technical it’s also true that I like gold in a fundamental sense this year. That’s less about Marine Le Pen and more about Donald Trump. Yesterday there were reports that the president’s lawyer “hand delivered Michael Flynn (former NSA) a secret plan to lift sanctions on Russia”.

• As I tweeted once I saw this the chances of some sort of Congress/presidential face off over Russia is something that traders need to consider for later this year or next. Again this is not a political view. But it is clear that the media, possibly US intelligence agencies, and soon Congress, will keep digging into the appearance of the Administration’s Russia ties. SO it’s gold in the bottom draw for me.

• Copper had a nice bounce last night. It's back up at $2.7475 after Friday's low of $2.675. If it takes out the recent high it's on its way.

• ON the supply front. Freeport has said its chasing arbitration on its Indonesian mine dispute and BHP Billiton Ltd (AX:BHP) and the union at Escondida were meeting overnight.

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

• Australia - Westpac Leading Index (MoM) (Jan) (10.30am); RBA Meeting's Minutes (11.30am)
• New Zealand - GDT Price Index (n/a)
• China - Nil
• Japan - Nikkei Manufacturing PMI (Feb) (11.30am); All Industry Activity Index (MoM) (Dec) (3.30pm)
• Germany - Markit PMI Composite (Feb), Markit Services PMI (Feb), Markit Manufacturing PMI (Feb) (7.30pm)
• EU - Markit Services PMI (Feb), Markit Manufacturing PMI (Feb), Markit PMI Composite (Feb) (8pm)
• UK - Public Sector Net Borrowing (Jan) (8.30pm); Inflation Report Hearings (9pm)
• Canada - Nil
• US - Redbook index (YoY) (Feb 17), Redbook index (MoM) (Feb 17) (12.55am); Markit Manufacturing PMI (Feb), Markit PMI Composite (Feb), Markit Services PMI (Feb) (1.45am); 4-Week Bill Auction, 3-Month Bill Auction, 6-Month Bill Auction (3.30am); 2-Year Note Auction (5am)

Have a great day's trading