Originally published by AxiTrader
Quick Recap
Another small reminder that geopolitics is likely to walk hand in hand in economics as a key driver of market movements in the year/years ahead overnight with the assassination of the Russian Ambassador to Turkey. Allegedly the gunman shouted “don’t forget Aleppo” as he shoot the ambassador.
Markets aren’t fazed though given it’s an isolated event. With US stocks up 0.2% for the Dow and S&P 500 while the Nasdaq 100 and Russell 2000 are both up more than double that.
Nor were they fazed by Janet Yellen’s apparent jobs and economic ebullience in her speech overnight. But the US dollar gained a small lift against the yen.
What You Need To Know
International
- Janet Yellen is about as bullish on the US jobs markets as her cautious self would allow. In a commencement speech released at 5.30am AEDT the Fed chair said “The short version of what I have to say is that while I expect workers will continue to face some challenges in the coming years, I believe, for two reasons, that the job prospects and career opportunities for new graduates at this time are very good”. So good in fact she said told the graduates at the University of Baltimore that “you are entering the strongest job market in nearly a decade”
- She doubled down saying “Job creation is continuing at a steady pace; the layoff rate is low; and job openings are up over the past couple years, which is another sign of a healthy job market. There are also indications that wage growth is picking up, and weekly earnings for younger workers have made strong gains over the past couple of years”. Only 3 rate hikes madam chair?
- She spoke a lot about the advantages of gaining a degree and the benefits it confers on the graduates. But she also spoke about technology and globalisation and how they impacted the US jobs market and growth. She said, effectively, while she can’t the impact or growth rate in the US as a result of these twin headwinds getting a degree was a good salve for graduates. Anyone else think that sounds like something Trump voters can point to?
- It’s a commencement speech so I don’t want to over egg it – but it was pretty optimistic.
Elsewhere
- Via Reuters the Chinese Academy of Social Sciences (CASS) on Monday forecast China's economic growth will slow again next year to 6.5 percent, which would be the slowest pace in more than 25 years, down from expected growth of around 6.7 percent for this year.
- Also in China and consistent with a lower growth rate was news yesterday that the PBOC is going to tighten the oversight of the shadow banking system – particularly the massive wealth management product sector. These exposures will be included in the banks Macro Prudential (LON:PRU) Assessment in 2017.
- Germany’s Ifo report wasn’t terrible last night. The current assessment printed 116.6, business climate was 111 and expectations were 105.6 – all were better than expected. The Bundesbank’s monthly report seemed to agree with this data. The bank said that German growth is expected to have accelerated significantly in the fourth quarter. Indeed European data is beating economist expecatations at the best pace in a few years. Some recalibration is going to be necessary in early 2017 most likely. Here’s the latest update of the Citi-bank economic surprise index.
- Monte Paschi is struggling to get investors together to raise the 5 billion Euros of capital it is trying to get over the line this week. The Italian government is seeking leave to fill the gap.
Australia
- Yesterday’s rally was somewhat remarkable. But I had lunch with an old colleague from my banking days at the café overlooking the ocean at Birubi yesterday and remarked that in 2016 we’ve often seen moves in on the ASX as a precursor to an overnight rally in the US. So I’m not entirely surprised that US stocks are up this morning even if they are only half the 0.5% rise the 200 index put on yesterday.
- The close at 5562 saw the ASX200 rally 29 points, 0.53%, in what was a broad based rally. SPI traders seem a bit unwilling to take the market any higher again today. But while US stocks are rising, and making new record highs overall sentiment for the Australian market will remain solid.
- Looking at MYEFO yesterday the good news is that the three ratings agencies essentially said there is no need yet to cut Australia’s credit rating from AAA. But as usual S&P said it’s worried.
- It’s fair to say the government clearly still has some issues with its budgetary and fiscal positions. The materially lower growth rate is hurting its receipts although expenditure work has been done.
- The key takeaway for me though was a challenge to the RBA’s rosy outlook on growth. Of course we won’t hear from the RBA again until the February board meeting. But this chart, put together by a mate of mine at Curve Securities in Sydney, suggests there is a yawning gap.
Forex
- The Australian dollar is under pressure again this morning down 0.78% at 0.7248. That's taken the Aussie below the 0.7250 zone I identified in my AUDUSD specific article yesterday. That looks like it might be the bottom of a little daily downtrend. But this break could open the way for a run toward 0.7150 on the charts.
- The Aussies selling is not out of context. Both the CAD and Kiwi are also on the back foot a little bit this morning as we await Janet Yellen’s speech.
- Elsewhere on forex markets the USD/JPY’s reversal continues but it has been tempered by Janet Yellen’s apparent optimism for the economy and jobs. 116 remains a target and support for the moment though.
- Euro is still under a little pressure sitting at 1.0415 this morning, while Sterling is at 1.2408. The latter was under pressure over the cost of Brexit once again.
Commodities
- Crude Oil was marginally higher last night but the market is very long as we head into the holiday season which feels like it is going to be a handbrake on further solid gains right now unless WTI can get up and through $52.40 for the front contract.
- Gold still languishes at $1137 while copper's fall continued and it sits at $2.495 a pound this morning down 2.58%. That’s satisfied my garden variety 38.3% retracement. Next support is $2.44.
Today's key data and events (all times AEDT)
- Australia - Food Price Index (MoM) (Oct) (8.45am); Westpac Leading Index (MoM) (Nov) (10.30am); Mid-Year Economic and Fiscal Outlook, RBA Meeting's Minutes (11.30am)
- New Zealand - GDT Price Index (n/a)
- China - CB Leading Economic Index (Nov) (1am)
- Japan - Nil
- Germany - Producer Price Index (YoY) (Nov), Producer Price Index (MoM) (Nov) (6pm)
- EU - Current Account s.a (Oct), Current Account n.s.a (Oct) (8pm); Consumer Confidence (Dec) (2am)
- UK - CBI Distributive Trades Survey - Realized (MoM) (Dec) (10pm)
- Canada - Wholesale Sales (MoM) (Oct) (12.30am)
- US - Redbook index (YoY) (Dec 16), Redbook index (MoM) (Dec 16) (12.55am); 4-Week Bill Auction (3.30am);
Have a great day's trading