Originally published by AxiTrader
Market Summary (8.01am Thursday August 30)
Good news – genuinely good news for markets and the global economy overnight.
If you think about the handbrake on sentiment over the past 6 months or so it’s mostly about the handbrake on growth and the uncertainty that the trade wars have caused with a little added worry about what Brexit might look like.
So news overnight that we could have Canada in a new NAFTA deal by the end of this week and that the EU is ready to offer the UK an unprecedented deal is good news for markets. And for the global economy.
The result has been a solid bounce in US stocks with the S&P 500 up 0.57% to fresh record highs and a close at 2,914 for a 0.58% gain. The Dow is higher as well at 26,124, up 0.23%, while the Nasdaq 100 surged 1.17% to 7,658.
Stocks in the UK didn’t enjoy the news that there might be a decent Brexit deal coming with the FTSE 100 posting a 0.7% loss. Perhaps the Pounds 1.2% surge in GBP/USD terms to 1.3031 and 1.1% surge in EUR/GBP terms which fell to 0.8985 after going vertical and then breaking the support I highlighted in Forex Today yesterday. On the continent the DAX rose 0.27% and the CAC rose 0.3%.
Here in Australia the ASX 200 surged back to 6,352 for its best close in a decade yesterday and overnight SPI traders have added another 16 points which implies a new decade high today. If the globe is going to be positive then why shouldn’t the local market – especially when the Aussie dollar is lagging at 73 cents.
To forex now and as discussed pound was the big mover against the US dollar and then on the crosses. That move has also resonated in a weaker US dollar against many pairs (even though US Q@ GDP was upgraded to 4.2%) which came off their overnight lows – the USD was stronger earlier – at the time the pound started to rock and roll. As a result the euro is at 1.1705 off a low of 1.1653 for a 0.12% gain. USD/JPY is up 0.43% at 111.66 as risk appetite rises and the need for a safe haven evaporates.
Of the commodity bloc the Aussie is again the laggard with a 0.3% loss to sit at 0.7313 this morning after a low in the mid 0.7270’s last night. You have to think the Westpac rate hike has folks worried about the domestic economy. The kiwi is up 0.1% to 0.6712 while the Canadian dollar is at 1.2909 in USD/CAD for a 0.15% gain against the Greenback.
Oil surged overnight after a bigger than expected draw and the faster than expected reduction in Iranian exports I highlighted yesterday. WTI is at $69.71 up 1.72% while Brent is at $77.35 for a 1.84% gain. Copper lost a little less than 1% in HGc1 terms to $2.7085 while gold bounced back with a $6 rally to $1207 for a half a percent gain. The CRB is up 0.65% while the CRB equity index is up 0.32%.
Bitcoin is at $7000 down about $100 bucks from this time yesterday while US 10's are stable at 2.89% while the 2's are at 2.68% for a 21 point curve.
On the data front today the release of CapEx for the second quarter is a big deal for the Aussie as it will be an important input in the soon to be released GDP for the quarter. Building approvals is also out as is retail sales in Japan and Kiwi business confidence and building permits. Tonight its German import prices, unemployment, and inflation while credit and mortgage lending data is out in the UK. Euro area business and consumer confidence are out as is Canadian Q2 GDP. And then we get PCE prices, income and spending data out of the US.
That’s plenty to get our teeth into – have a great day.
Macro Stuff that affects everyone and everything – either today or eventually
International
- Trade talks on NAFTA seem to be coming to a head and it’s a positive one. That’s the news overnight where Presidents Trump and Pena Nieto along with Canadian prime minister Justin Trudeau all say a deal is close with expectations it could be done by the end of the week. If it happens, and if it’s in a form the congress can pass then that is very good news for North American growth and for North American markets. The Canadian dollar and Mexican peso are already gaining ground. But ultimately this is also helpful for the USD as well via the Fed/growth channel.
- Good news out of Europe as well with EU negotiator Michel Barnier saying overnight, “We are prepared to offer Britain a partnership such as there never has been with any other third country”. Reiters reports Germany’s foreign minister Hass said that could include economic as well as foreign and security policy ties. But Barnier did have a warning for the UK, “We respect Britain’s red lines scrupulously. In return, they must respect what we are…Single market means single market ... There is no single market a la carte,” he said.
- This prompted UK Brexit Minister Dominic Raab to say, A Brexit deal is within our sights. Cur the Sterling rally.
- US Q2 GDP was upgraded to 4.2% from the originally published 4.1% last night. That was a better print than the 4% downgrade that the market was expecting. A point 1 here and a point 1 there are really the smallest of rounding errors the way the US calculates growth, but it is still the strongest rate of growth in 4 years. Reports want to focus on the bad stuff still though – behaviourally I still reckon this is a big cabal or reporters who just can’t give Trump credit for anything – and so the chat turned to the goods trade deficit which increased 6.3% to $72.2 billion in July on lower food shipments.
- The US CESI score is still negative at -17.9. But if the data evolves as the Fed seems to expect that’s likely to get back to zero.
- This is important folks. Stocks are different to currencies and commodities. In general while currencies and commodities have tended to go up and down through cycles as growth globally and at an individual country level have dominated stocks have grown as economic growth has grown. Of course stocks go through cycles as well – we’ve seen two massive draw down already this century for stocks. But in general it’s bottom left to top right that stocks track through time.
- That means there is an inherent bullish bias in stocks. Indeed as someone who cut his teeth in the rising, and then collapsing interest rate environment of Australia in the late 1980’s and early 1990’s I prefer things that can go down as well as up. It’s why I love the Aussie dollar above all assets to trade.
- ANYWAY, this is a precursor to me saying something I’ve said before but which often is absent in my daily musings because of the short-termism of those. I have a simple metric for stocks – one I borrowed from Jams Rohrbach – if the 15 and 30 week ema’s are pointing up the market is in an uptrend. By this metric the S&P 500 has been trending higher since it was around 2,000 and remains in that trend. Here’s the chart. Obviously we’ll either get a topping pattern which will give traders a chance to get ready for a turn, or we’ll miss the top by a mile because we’ll get an event. But for the moment, even at what fell like lofty level the uptrend persists.
- But folks remember what I’ve been saying about Jay Powell and his Fed, they aren’t dovish. They are data dependant. And with the upgrade to Q2 GDP last night, with the Atlanta Fed still saying 4.6% for Q3 GDP, and with the potential for a lift in trade tensions we may see a renewed focus on the strength of the US economy. And, as Gluskin Sheff’s David Rosenberg tweeted a couple of days ago – inflationary pressures are building. The Fed is not dovish.
- I have to say though, I don’t think China is going away in a hurry as significant issue for the US Administration and President Trump. But recall that quote from Dallas Fed president Robert Kaplan this week – he’s onboard with that battle and so too are many Fed officials it seems. This is something that may eventually upset the apple cart. But I’d guess we’ll get some sort of settlement before that happens in a lasting way.
Have a great day's trading.