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Stocks Recover In Europe And The US

Published 07/12/2017, 09:35 am
Updated 06/07/2021, 05:05 pm

Originally published by AxiTrader

Market Summary

Stocks pared the worst of their losses overnight as the Asian market selling seems to have run into a bid from the European and US BTD crowd.

That’s left the Nasdaq up around half a percent at 6,295 with the S&P 500 just in positive territory with a 0.1% gain to 2,632 and the Dow at 24,195 up 0.05%. Not spectacular by any sense of the word but certainly a lot better than weakness we saw on the Hang Seng, KOSPI, and Chinese bourses yesterday.

The washup is that even with metals and oil lower again SPI traders have added 22 points overnight to yesterday’s ordinary performance of the S&P/ASX 200.

On forex markets it was all mixed up again. Euro is lower at 1.1795, the yen is stronger with USDJPY at 112.25 and the pound dipped on more slippage in the Brexit deal timeline – GBPUSD is at 1.3371 and seemingly biased lower yet. On the commodity bloc the Aussie remains pressured at 0.7560/60 after yesterday’s GDP data disappointed. The Canadian dollar has dropped after traders read the BoC as dovish – USDCAD is at 1.2794 – while the kiwi is largely unmoved at 0.6879.

On commodity markets oil is lower even after a big draw in crude inventories as a combination of the technical outlook and an increase in US production, gasoline and distillate stocks. WTI is off 2.76% at $56.03. Brent is at $61.30.

Gold is back at the bottom of the range at $1264 this morning while copper has stabilised at $2.94 amid more weakness for metals.

Today we get trade in Australia, EU GDP tonight is the other highlight.

Here's What I Picked Up (with a little more detail and a few charts)

International

  • The Bank of Canada kept rates on hold at 1% last night and signal further rate hikes but that it will be cautious. The bank said that “the current stance of monetary policy remains appropriate” but “higher interest rates will likely be required over time”. That said the read of interest rate and currency traders was that after the stellar jobs numbers released last Friday the bank might be a little hawkish. So rates rallied and the Canadian dollar came under heavy pressure losing 0.84% against the USD.
  • Sterling is lower again this morning as the Brexit deal looks like it is slipping into 2018. In large part the issue remains the Irish border. The DUP looks dug in and Irish prime minister Varadaker say his nation are ready to do a deal but on the terms already expressed this week. So the chance of a deal by next week’s EU meeting is ebbing away. And how can May make a deal when she is overseeing a Cabinet revolt and the EU says she can’t actually articulate what she really wants.
  • Data in the US was interesting overnight with productivity missing expectations of a 3.3% increase but still improving from last quarters 1.5% pace with a solid 3% print for Q3. But labour is missing out with accompanying unit labour cost data showing a fall of 0.2% for Q3 not the rise of 0.2% the market had expected. Also out was the ADP jobs data which was around expectations with a print of 190,000 which provides a good lead into US non-farms tomorrow night.
  • Grey swan watch – President Trump has announced this morning that he is going to officially recognise Jerusalem as the capital of Israel. As discussed yesterday this is likely to upset many across the region.
  • Have a read of the Ken Rogoff interview in the AFR today it’s very good. Recall he is the professor who, along with Carmen Reinhart, wrote the definitive book on global debt and banking crises a few years back. IN the interview Rogoff says the world is in the catch up phase of growth and that “the pessimism around secular stagnation and low productivity is just nonsense," adding “the average arc of a deep systemic financial crisis is eight to 10 years to fully recover so it shouldn't be surprising that growth has been slower. He’s spot on folks – I read a history of global inflation back a thousand years written by David Hackett Fisher back in 2008 and in the end it read like a history of banking crises and Rogoff is right about when the economy picks up.

Australia

  • Rather than write a lot of words about GDP yesterday I want to share a couple of slide from a presentation I’m giving in Newcastle this afternoon.
  • A snapshot on what GDP told us…GDP lifted, but household consumption was low with growth buttressed by investments and infrastructure. The terms of trade fell and price pressures in the economy are absent.

Chart

  • And here is why there is a disconnect between headline growth and what households feel have diverged. Two tweets I saw from Indeed’s Callam Pickering summed it up neatly. Population growth is a big part of Australia’s overall growth meaning individually households can feel like they are missing out.

Chart

  • And folks that’s pretty much all you really need to know. Australian growth is not terrible. It is essentially where the RBA thought it would be about now. The weakness in HCFE might have been a surprise though. Thus it’s the same discussion we’ve been having for a while now – households are the big risk on the horizon of Australia’s growth. Like the RBA, myself and others will be watching closely.
  • Looking at stocks now and the ASX was dragged lower by the Asian weakness yesterday but has been rescued by the recovery in US and European stocks from their lows overnight. Metals are still red though and crude is down around 2% so the SPI’s 22 point rally could be optimistic. For the moment though the market has held what is looking like the bottom of the range. A lot of what happens today will depend on whether or not the Asian stock weakness continues or stocks across the region can find traction.

Chart

Forex (this is not meant to be an exhaustive list of every currency just what caught my eye today)

  • An interesting night on forex markets with the US dollar stronger against the euro, pound, Aussie, and Canadian dollar but weaker against the yen which seems to have benefited from this little risk off tone in global stock markets over the past day. As I highlighted yesterday I was one of only 2% of respondents who thought euro could end the month substantially lower – under 1.16. Most respondents thought EUR/USD would end in the 1.18/1.20 region. That’s of course possible. But with the Fed next week likely to have to address the impact of tax cuts on growth and its policy response the chances are that euro comes under some selling pressure. Certainly, the charts suggest that 1.1700/20 is on the cards.

Chart

  • GBP/USD has lost 50 of the first 100 points I highlighted it could lose yesterday. The slipping Brexit negotiations are weighing on sentiment and GBP/USD is approaching an important trendline support which sits around 1.3300/15. If that breaks the Pound could really capitulate.
  • Looking at the commodity bloc it’s clear that traders don’t believe the BoC when it says that rates will need to rise again – indeed I’ve read some research which says they’ll need to reverse course next year. I say that because even after the BoC statements the Canadian dollar is down 0.8% with USD/CAD up at 1.2790 – oil didn’t help. The Kiwi’s recent outperformance among the group continues with NZD/USD flat at 6874. But the Aussie is lower and back on important support here in the low 0.7560 region after yesterday’s not terrible but pessimist empowering GDP result (I like that line, it just popped out of my head, so I bolded it for you

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