Originally published by AxiTrader
Key Takeaway
You would have been forgiven for expecting a pretty poor performance in the US last night based on Asian and European trade. But for the umpteenth time in the past couple of years – let alone my career – Monday Asia got the wrong end of the stick.
So the US dollar, stocks, and bond rates, are all off their lows this morning.
What seems to be going on in US stocks is that president Trump is being given the benefit of the doubt that he will be able to deliver on tax and infrastructure. But as I have written also this morning the Trumponomcs rally retains its fundamental underpinning in a dataflow which is still printing better than expected.
At the close, stocks are down, but not as much as they were. The US dollar is weak, but off the mat. And bonds are cautiously bid at both ends of the curve.
As a result the US Dollar Index is at the bottom of the recent range, euro traded to 1.09 last night, GBP/USD touched 1.26, the yen traded into the low 110’s and the Aussie – well the Aussie is lagging because this is not a good environment for it.
On commodities copper and oil bounced from their lows – nicely. And gold has failed to hold above the 200 day moving average again -even though at $1255 it’s elevated in price.
What You Need To Know (with a little more detail and a few charts)
- S&P 500 -2 (0.10%) 2342 (7.33 am Sydney)
- Dow Jones Industrial Average -46 (0.22%) 20550
- Nasdaq 100 +11 (0.2%) 5,752
- SPI 200 +16 (0.2%) 5,752
- AUD/USD 0.7622 +0.0%
- Gold $1255 +0.87%
- WTI Oil $47.79 -0.38%
International
- The most interesting thing going on right now besides the question of the market’s attitude to what we might call “Trump efficacy” is German and European growth, inflation, and what that means for the ECB. Last night we saw a battle being raged at the ECB and another confirmation that the German economy is doing rather well right now.
- On the ECB front - chief economist Peter Praet was his usual pro-Draghi dovish self saying “we need to look through the recent surge in inflation, which is driven by transient factors that will probably fade before long…Our conclusion that a very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term remains valid.”
- But German ECB Executive Board member Sabine Lautenschlaeger said the ECB should be readying itself for an exit from emergency accommodation. "We should prepare for a change in the policy and as soon as the data is stable and we have a sustainable path towards our objective of price stability, then we are well prepared to do," Lautenschlaeger said in an interview with CNBC.
- Lautenschlaeger’s view was reinforced by comments from Bundesbank president Jens Weidmann who said “I would like to see a less expansive stance”.
- This simply highlights the US dollar’s weakness recently hasn’t just been about Trump. The fundamental drivers like bond spreads and policy divergence/convergence are still vital.
- And while I’m on Europe the German election result suggests it is more difficult than many thought for Marine le Pen to take the frencdh presidency. I discussed this yesterday as a positive for euro as well after Angela Merkel’s conservatives prevailed in Saarland. It’s not a direct parallel of course but as Emmanuel Macron attracts support from both sides of the political spectrum in France Marine le pen looks like she is getting edgy. In the past two days she’s said a euro exit wouldn’t be messy and overnight vowed to quit if elected and her Frexit referendum is defeated. Behaviourally these are tells on what she thinks her chances are I think. Bust or bust through perhaps???
- And before I leave the continent I have to mention the Ifo business climate index which rose to 112.3. That’s the highest level for the best part of six years. As this Reuters graphic shows “Germany is on the rise”
- Regular readers know I put out a piece some time ago saying I thought 18.60 was in the frame for the USDMXN. I got laughed at by a few folks – not the first time