Stocks And The US Dollar Higher After GDP Revision And Higher Crude

Originally published by AxiTrader

Key Takeaway

The FTSE 100 was down a tiny bit. But apart from that it's a sea of green across major global stock markets this morning after the recovery in crude oil and a slight upgrade to US Q4 2016 GDP supported prices.

Oil is back above $50 a barrel in WTI terms on the back of a building consensus, and trader's expectation, that a production freeze extension is coming. Throw in a triple bottom at $47 and the probe to the topside looks like it might have further to run yet.

On the data front US GDP was revised ever so slightly from2.0% to 2.1% for Q4 2016 while in Europe German and Spanish inflation printed significantly lower than expected. That's reinforced the warnings from the doves at the ECB

That's reinforced the warnings from the doves at the ECB about inflation's transitory nature. And it's reinforced the reversal in the euro which is now back below 1.07 this morning.

On other Forex markets USD/JPY is higher and trying to break back inside the recent range, sterling is higher as well while the Aussie and kiwi are under a little pressure.

In other markets US bond rates are higher, base metals have lifted a little but the wash up of all of the above is that gold has lost further ground and is back at $1244 this morning.

Chinese PMI data today along with Japanese CPI is the highlight.

What You Need To Know (with a little more detail and a few charts)

• S&P 500 +7 (0.29%) 2368 (7.42 am Sydney)
• Dow Jones Industrial Average +69 (0.33%) 20728
• Nasdaq 100 +17 (0.28%) 5,914 NEW HIGH!
• SPI 200 +9 (0.15%) 5,889
• AUD/USD 0.7642 -0.33%
• Gold $1242 -0.74%
• WTI Oil $50.39 +1.78%

International

• It's only a small upgrade but the marginal increase to 2.1% for Q4 GDP seemed to have an outsized impact on sentiment in US markets last night. That and the fact that the consumption component was upgraded seems to have been the key to reinfocing the strength of the US economy.

• Yes, as someone noted to me on Twitter yesterday, Q1 GDP looks poor. But that Q1 GDP is weak has become a trend in the US in recent years. It's something that Fed vice-chair Stanley Fischer highlighted a couple or a few years back. And it's something that most pundits and traders seem to have assimilated in their view. Of course we haven't really seen any US data printing worse than expected for some month's now - and if that happens we may be having a different conversation. But for the moment the economy is supporting stocks in the US.

• That said the rally has stalled in March. But dips in US stocks like the US dollar have remained buying opportunities it seems as traders and investors who missed the boat support the market. It's likely only a substantial turn in US data or a failure of president Trump's agenda on tax and infrastructure will change that anytime soon.

• But on that note it is worth highlighting that president trump has gone after the Freedom caucus on Twitter and put them in the same political enemy boat as the Democrats. That fundamentally changes the metrics of getting the numbers in the House. Here's the tweet:

• Nothing like the data to reinforce the message from the ECB that everyone needs to take a Bex and lie-down when it comes to the excitement about inflation and a change in policy. Last night inflation preliminary releases for March in Spain (HICP 2.1% against 2.7% expected) and German CPI which printed 0.2% against expectations of a 0.5% increase gave traders reason to pause and perhaps reflect on ECB chief economist Peter Praet's comments this week that inflation is transitory.

• Certainly the big drop in German annual inflation from February's 2.2% rate to 1.6% headline and 1.5% harmonised suggests that maybe folks like me got ahead of ourselves when it comes to European reflation. And Euro traders as well if the price action overnight is any indication.

Australia

• Boomity, Boomity, Boom, Boom, Boom. What a run the ASX is having right now. SPI traders have added another 9 points overnight after yesterday's 23 point rally saw the index close at 5896.

• I'm not on this run - I clambered off a while back above 5800 - but this is a powerful move as money comes back into the market. Technically what's really important about this move is that it has broken the downtrend line which stretches back to the market's all-time high in 2007.

• It's month end today, it's also quarter end. So a break of this downtrend won't go unnoticed across global markets. It's a significant bullish event for the local market - resistance at 5950/60 could slow the rise as will the now relative outperformance to the S&P 500. Here's the S&P/ASX 200 for the past 10 years weekly:

Forex

• The US dollar had a bit of a rollercoaster ride last night when news broke that president Trump was "looking for ways to penalise currency manipulators". But on balance it is mostly stronger against the majors.

• Euro is down 0.86% this morning to 1.0680 afte that inflation data reinforced the notion of policy divergence. It's a theme I wrote about in my piece yesterday noting that Policy divergence is back - and it will hurt the euro.

• Looking at the chart the capitulation of the bulls since the failure of at the 200 day moving average and the message from the ECB that traders have the wrong end of the stick has been fast and furious. A run back under 1.06 to test trendline support seems a high probability.

• USD/JPY is higher as the US dollar pushes on the back of the clear signal that policy divergence is back as a driver of forex markets. It's a nice bottom, my system is long, and a close back inside this old range suggests to me a run back toward recent highs.

• Elsewhere the US Dollar Index is back at 100.51, Sterling is still a winner up 0.3% to 1.2467 but the Aussie and kiwi are under a little pressure this morning.

• The Mexican peso is still strong holding at 18.68 after the Bank of Mexico jacked rates up another 25 basis points this morning to 6.5%. That's a high rate but inflation in Mexico is closing in on 5% at the moment. So it's completely in context. Worth noting - the hike of 25 basis points was half the recent moves of half a percent.

Commodities

• WTI is up another 1.54% this morning to $50.26 as it retest the old trendline that prices broke down and through a few weeks back. The Catalyst for this move, and Brent's 0.84% rise to $52.86, is a growing sense that OPEC - and Russia - are keen to continue their production cut deal to drive prices higher.

• Overnight we heard from the Kuwaiti oil minister, again, who said that such a deal is in the offing. That fits neatly with changed thoughts about Russia's role in the market. Russia was initially slow to cut production worrying many - myself included - that they were less than fully committed to the deal. But overnight Russian oil minister Novak said "we anticipate complying with the figure set forth in the agreement by the end of April".

• That's help drive WTI back to both the trendline resistance, previously support, and bottom of the previous range. My system is long. Here's the chart:

• Gold is lower again this morning as rates rise a little and the US dollar catches a bid once more. It's lost a little over $7 to $1244 and on the charts looks like a run into the $1235/6 region - that's the 38.2% retracement level of the rally from $1194 to the failed run at the 200 day moving average this week.

• Copper is up the tiniest bit at $2.67 a pound but that is overall consistent with the slight green tinge to base metals overall across the last 24 hours.

Have a great day's trading.