Oil Drops Again

Originally published by AxiTrader h2 Market Summary/h2

A recovery in the Nasdaq failed to pull the Dow Jones Industrial Average and S&P 500 back into the black overnight. The US dollar was a little weaker and bond markets remain sceptical of the US economic recovery.

The Nasdaq rose 0.75% to 6,233 but the S&P 500 was marginally lower, down around one and a half points to 2,435. The Dow fell 57 points, 0.27%, to 21,410. European stocks were lower as well. But SPI traders are more optimistic and have marked prices 17 points higher after yesterday’s massive 92 point fall on the S&P/ASX 200.

Forex markets were relatively quiet. Sterling was higher after an influential MPC member said he’ll probably vote to hike rates later this year. The Canadian dollar was the other big mover as oil collapsed again. Euro and yen hardly moved while the Aussie dollar has been under mild pressure for about the last 18 hours. It’s at 0.7551 at the moment.

On oil more concerns about the outlook for market balance weighed. WTI and Brent fell more than 2% again. Gold hardly moved but copper, base metals and iron ore recovered.

It’s a bit of a data drought today once we get the RBNZ out of the way.

• Andrew Haldane, BoE chief economist and MPC member, reignited the policy debate in a speech overnight saying that he’s likely to vote for a rate hike in the second half of this year. This apparent hawkishness stands in stark contrast to comments the previous day by BoE governor Mark Carney who struck a decidedly more dovish tone. “Provided the data are still on track, I do think that beginning the process of withdrawing some of the incremental stimulus provided last August would be prudent moving into the second half of the year…The first 25 basis-point rise in UK interest rates for 10 years seems like a momentous step. But it would still leave monetary policy highly accommodative by any historical metric,” Haldane said. Central banks have been key this month for bond and forex markets. And Haldane’s comments suggest the BoE MPC remains divided.

• Also on the central bank front BoJ governor Kuroda yesterday reinforced the message that he and the bank see continued need for monetary accommodation. “Our economy is on firmer footing, but we are still distant from our 2 percent inflation target," He said adding “"It is appropriate to keep monetary conditions easy with our current market operations framework.” USD/JPY is down a little on the US dollar’s dip but this reinforces the policy divergence between the two central banks. In a broader sense it also means more money is going to continue to be pumped into the global economy under the BoJ’s QE program.

• US existing home sales beat in May data released overnight showed. That’s helped the Citibank economic surprise index for the US improve marginally from the recent low. But it is still extremely week at -76.5.

• The ECB, in its regular monthly update, said that the risks to the global economy are easing and markets are taking the Fed’s tightening cycle in their stride. But the ECB is worried about the rise of protectionist rhetoric and policies. The bank also said it still has concerns about vulnerabilities in China’s economy, and about the impact of Brexit. Net on net, the ECB concluded “although some risks appear to have diminished, the balance of risks to the global outlook remains tilted to the downside.

• Something else for the Australia doomsayers to fret about. China said yesterday it wants to boost the share of services in its economy to 60% by 2025. That’s consistent with the economic transition authorities in Beijing are trying to engineer and a continuation of the trend that sees services make up around 52% of the economy now. For Australia, it means the relative importance of Australia’s mineral exports to Chinese growth will diminish. But it also opens up other opportunities.

• Another bad day on the local market yesterday with a loss of 92 points and close at 5,666. The price reversal from above 5830 just last week has been brutal and will have materially impacted sentiment. There isn’t much the energy sector can do given price moves in global oil markets and the battle for valuations in Australia’s financial sector continues.

• But as I noted yesterday this price action, and the underperformance to the US and other global stock market rallies, has me wondering if this isn’t a re-run of 1999. That is, perhaps global investors have just moved on to other opportunities. Whether that’s tech, Europe, or elsewhere that’s the sense I get from watching the price action and the local market’s under performance.

Get The App

Join the millions of people who stay on top of global financial markets with Investing.com.

Download Now

• On the day though SPI traders are betting on a better day ahead. They’ve marked prices up 17 points overnight but given the sectoral breakup of the S&P 500’s moves last night – Energy, Basic Materials, and Financials down – could mean we are in for another weak day.

• There is no data of note so it’s really about sentiment and value today. It should be interesting.

• In SPI terms there is support in the 5580/5600 regions.