Quick Recap
Let’s just call it the Olympic effect but in general save for oil the moves overnight have been fairly muted. That said the buyers came for the Aussie again and it challenged the recent range high.
What You Need To Know
International
- It’s the Olympics, so if you want an excuse to do nothing as a trader the opportunity is available to you. In many ways that’s a little of what we saw in overnight trade on the big stock markets. At a sectoral level anyway. Individually companies and sectors were moving.
- But then again that is the story of the market at the moment. There are lots of individual moving parts to this move higher. It’s not just about a tide that’s lifting all boats.
- Chinese trade data yesterday went off without a hitch. A big fall in exports of 4.4% in US dollar terms masked what was actually a 2.9% rise in Yuan terms. So the message that sends about global growth is more clouded but not negative to me. Likewise, imports collapsed 12.5% in US dollars but only 5.7% in Yuan terms. So yep, maybe China continues to slow. But it hasn’t collapsed the way many expected just 6 months ago. But the domestic economy is clearly slowing.
- I am not a UK economic bear with GBP/USDnear 1.30. So even though industry and PMI’s have collapsed and there was a report last night from CBRE that London property price fell more than 6% in July its consumers I’m watching and interested in. So, worth noting is that Reuters reported this morning that “A survey by Visa UK, based on Visa credit and debit card data, showed consumer spending rose 1.6 percent in July compared with a year ago, up from June's 0.9 percent increase and the biggest rise in three months. Seasonally-adjusted spending increased 1.1 percent on the month, the strongest since January and reversing June's dip”. JUST SAYING
- And if HSBC is right and the Pound collapses further – I’m even less worried.
Australia
- A 40 point gain for the S&P/ASX 200yesterday was right in the middle of the 30-50 point gain range I suggested on Sky yesterday morning. SPI futures are up 11 points even though US markets are a tiny bit negative. That reflects the fact the miners had a good day again in north hemisphere trade, globally banks did well, but as noted above the overall US indexes are down a little. So maybe a quiet day with the focus on those companies reporting.
- The ANZ set the groundwork yesterday for a discussion about how new regulations mean higher costs with their announcement about the impact APRA’s floor on the discount factor they use for calculating the capital they hold on mortgages. What’s important to know though is that the majors and Macquarie have been able to hold a lot less capital against mortgages than the rest of the industry – regional banks, mutuals and so on, because they have been able to use internal models to calculate the risk in their home loan book.
- Whereas other banks have to weight their mortgages at 35% the majors were able to get this ratio (which forms part of the equation for the capital that needs to be held) down into the teens – less than half other banks in some instances.
- Less capital means more available leverage which in turn means more profit – so is it any surprise the banks repointed their balance sheets toward housing in the post-GFC environment? APRA’s move might cost shareholders and banks profit but it is the right think for financial stability in Oz…AND the majors still hold less capital per dollar of loans lend than other banks.
Forex
- Very quiet on forex markets over the past 24 hours with only the Aussie dollar, and to a lesser extent USD/JPY moving much from Friday night’s close. The Aussie found the bid almost from the moment London got their feet under the desk. It’s at 0.7652 this morning at 5.16am up 0.45%. Why? All the same factors the CBA highlighted last week as reasons the Aussie went up after the RBA rate cut last week remain in place.
- Yesterday I put out a piece on the AU-US 10 year spread and I believe if that compresses toward zero there is a big chance support for the Aussie will evaporate. But Aussie bonds rose with US rates yesterday so the spread remains a little below 40 points in Australia’s favour.
- USDJPY is at 102.43, Euro is at 1.1084, and Sterling is at 1.3044.
Commodities
- Crude oil is up again as the recovery from the lows last week continues. WTI is up 2.32% at $42.77, Brent rose 1.9% to $45.11. The price rallied after comments from the Qatari Oil Minister, the current OPEC president made a statement after an informal meeting noting that there will be more talks in Algiers next month and again suggested the market is getting back to balance and the decline in oil prices is only temporary.
- But this is also a very technical move in oil. The sell off pulled up last week at important Fibonacci support and then last nights high in WTI was almost right on Fibonacci resistance. What does that mean? Put simply this is still a traders market.
- Gold is becalmed at $1355 but James Grant from Grants interest rate observer in the US reckons gold be a great asset in the future and David Lennox from Fat Prophets said on Sky yesterday afternoon that he can see a rally toward $1500 an ounce in time.
- Copper is up a tiny bit to $2.16 and again Lennox gave some colour around recent price action. He’s not negative on copper but said that Australian producers can pull a pound of copper out of the ground for $1.50 or $1.60 and then sell it for A$2.50 so there remains a supply overhang which should cap rallies.
- Iron ore had a raging day yesterday. The Chinese trade data showed decent imports and away we go. Futures were higher by another 2% overnight.
Today's key data and events (all times AEDT)
- Australia - National Australia Bank's Business Confidence (Jul) (11.30am)
- New Zealand - Electronic Card Retail Sales (YoY) (Jul), Electronic Card Retail Sales (MoM) (Jul) (8.45am)
- China - Producer Price Index (YoY) (Jul), Consumer Price Index (YoY) (Jul), Consumer Price Index (MoM) (Jul) (11.30am)
- Japan - Nil
- Germany - Imports (MoM) (Jun), Exports (MoM) (Jun), Trade Balance s.a. (Jun), Current Account n.s.a. (Jun) (4pm)
- EU - Nil
- UK - BRC Retail Sales Monitor - All (YoY) (Jul) (9.01am); Trade Balance; non-EU (Jun), Goods Trade Balance (Jun), Total Trade Balance (Jun) (6.30pm); Inflation Report Hearings (7pm); 30-y Bond Auction (n/a); NIESR GDP Estimate (3M) (Jul) (12am)
- Canada - Housing Starts s.a (YoY) (Jul) (10.15pm)
- US - Unit Labor Costs (Q2), Nonfarm Productivity (Q2) (10.30pm); Redbook index (MoM) (Aug 5), Redbook index (YoY) (Aug 5) (10.55pm); Wholesale Inventories (Jun), IBD/TIPP Economic Optimism (MoM) (Aug) (12am); 4-Week Bill Auction (1.30am); 3-Year Note Auction (3am); API Weekly Crude Oil Stock (6.30am)
Have a great day's trading
Greg McKenna
Chief Market Strategist AxiTrader
www.gregmckenna.com.au
Please note: I usually look at 2 or 3 charts each day. These will not always be the same charts and the above is meant to help guide traders thought processes not offer advice.
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