Stocks Surge To New Record Highs As US Dollar Stalls

Originally published by AxiTrader

Quick Recap

The yen is at 111 and the euro is off its highs but the US dollar is generally a little softer as EM and commodity currencies show some signs of strength. That’s both inherent in the need for this swift US dollar move to consolidate but also in the recovery in commodities as traders bet China and the US might both give a tailwind to demand in the year ahead.

Of course, when it comes to Crude Oil its all about supply and comments in the past few days from the Saudis, Iranians, Iraqis, and Russian president Putin all suggest OPEC is edging toward a deal. Naturally oil shot higher and after being 1% higher in Asia is up 4% now in North America (it is expiry day though).

That commodity recovery and the surge in oil has helped drive US stocks sharply higher with the S&P 500 in particular up a stellar 15 points for a 0.66% rise and a new record high.

What You Need To Know

International

• It’s all green on the S&P 500 this morning. Naturally energy stocks are leading the way higher but every single sector of the market is up with financials the only sector to really lag. That sea of green has propelled the S&P 15 points higher to 2196 while the Nasdaq 100 hit another record high and is at 5362 up 0.77% and the Dow is 0.4% higher at 18,941. Dow 20,000 hats anyone :)

• Key to the rally as I’ve noted was the surge in oil. But where the Thanksgiving shortened week may have elicited some thoughts of profit taking it seems to have rather bottlenecked the buying. Some of the credit for that buying, and stock strength, must surely be given to Fed Vice chair Stanley Fischer.

• Fischer intimated that a December hike is on the table but more importantly gave tacit approval to Donald Trump’s spending plans. He worried that the policies of and outcomes of the recent years had lowered the equilibrium interest rate in the economy – yes its wonkish – and that meant the Fed had less room to maneuverer in the next crisis and now. But he highlighted in his conclusion that the fed may no longer be the “only game in town”.

• He said
  • Certain fiscal policies, particularly those that increase productivity, can increase the potential of the economy and help confront some of our longer-term economic challenges. While there is disagreement about what the most effective policies would be, some combination of improved public infrastructure, better education, more encouragement for private investment, and more effective regulation all likely have a role to play in promoting faster growth of productivity and living standards.

• The Bundesbank said it expects growth to pick up substantially in Q4 in Germany

• ECB’s Villeroy said the bank is going to be pragmatic about the end to QE. Not taper faster but not have endless policy accommodation either.

• Canada announced it is getting rid of coal fired power generation by 2030

Australia

• Today finally the S&P/ASX 200 should break up and through this resistance zone fuelled by rallies in the miners, energy stocks and maybe even the banks will tag along for the ride because if the economy is going to do well then so to will the banks.

• I say the above because after another disappointing day yesterday – where traders probed the down side but could really rally at all leaving the ASX unchanged at 5351 – overnight futures traders have marked the December contract 34 points higher. That’s taken the SPI through the 5370 level I’ve been jabbering about and it sits this morning at 5385.

• I’m bullish I guess and I’ve put some of my super out of cash and into stocks now for a Santa, perhaps 2017, rally (not advice - this is a personal reflection added here to show that I eat my own cooking). The next big hurdle for the SPI is 5438.

• On the data front today we get the ANZ consumer confidence number for the past week and Chris Aylmer, Head of Domestic Markets at the RBA is speaking at 10.35am AEDT. But he’s at the Securitisation conference so it’s probably more technical than relevant to the economy. For that we have to wait for assistant governor Chris Kent tonight at 6.45pm AEDT. He’ll be speaking at the ABE on the economic outlook for the nation on a state by state basis.

Forex

• The US dollar stalled a little. But only a little really and not in a uniform way by any stretch of the imagination. Euro climbed to 1.0650ish but is now back at 1.06. USDJPY is up at 111.21 as the yen remains pressure, but sterling is up almost 1% as British prime minister Teresa May suggested that she could seek transitional arrangement for Brexit. That implies a softer Brexit not the hard scary one that so freaked out forex traders and wakes Mark Carney with nightmares.

• The Wash up is a US Dollar Index that is stalling and consolidating its recent move. The question on traders minds though is it a time consolidation or a price consolidation. That is a big pullback or just a sideways move.

• Looking at the commodity bloc the Aussie recovered from yesterday’s lows and is at 7348 this morning, the Kiwi is up 0.4% at 0.7041 and the Canadian dollar has gained a similar percentage after testing trendline support last night near 1.34. Given oil’s surge that continued support for USDCAD at 1.34 suggests the market isn’t yet ready to give on US dollar strength.

• Across the emerging space the South African rand was a big winner gaining 1.5% to 14.24 while EMAsia at least stopped falling against the US dollar.

Commodities

• I am an unashamed believer that OPEC has little or no choice to get a deal done. I have been mostly in the minority over recent months among market watchers, but the fiscal imperatives of budget balances and services for citizens suggested a need to increase income across most of OPEC and non-OPEC alike.

• So comments from Iran that oil will get to $55 if a deal is done, from the Iraqi’s that they are working with the bloc to get a deal done, from the Saudis that a deal is close and from the Russian president that he can work with OPEC as it closes in on a deal are all important in signalling to traders that November 30 could actually usher in the paradigm shift putting the Saudi plan to pump, pump, pump, which the previous regime instituted back in 2014, to bed.

• Naturally the bloc has the chance to yet snatch defeat from the jaws of victory, and naturally with everyone pumping as fast as they seemingly can lip service won’t work. But the Saudis said last week the deal should be aiming on getting production back to the bottom of the range at 32.5 million barrels a day. That can drive prices and and probably through resistance – in WTI terms – at $52.

• Looking at the chart WTI has popped back inside the old support line and sits just below the $48.39 resistance level (61.8% fibo). Given everything we’ve seen in the run up to Brexit and the US election it’s a reasonable bet it could run all the way to $52 before the meeting. Here’s the chart.

• Copper had a great day – as did metals in Shanghai and across the globe broadly. The thinking seems to be (at least yesterday) that continued Chinese investment plus a US infrastructure boom can drive metal demand and prices higher. Compared to China the US hardly moves the needle on coper demand but there are also worries about where all of the supposed copper supply is right now with inventory levels lower than expected. That’s help support prices on the pullback. But technically copper still looks like it needs time to consolidate as you can see in the chart below – but shorts, like me, need to be careful in the current whippy environment.

• Gold is up a little as a combination of no new selloff in US rates and a hiatus in the US dollar rally lifted it off a new low for this run at $1205. It’s only marginally higher though siting at $1210 this morning and not out of the woods or a possible retest of $1180/$1200 support yet.

Today's key data and events (all times AEDT)

• Australia - RBA Assistant Governor Kent Speech (6.45pm)
• New Zealand - Visitor Arrivals (YoY) (Oct) (9.45am)
• China - Nil
• Japan - Nil
• Germany - Nil
• EU - Consumer Confidence (Nov) (2am)
• UK - Public Sector Net Borrowing (Oct) (8.30pm); CBI Industrial Trends Survey - Orders (MoM) (Nov) (10pm)
• Canada - Retail Sales ex Autos (MoM) (Sep), Retail Sales (MoM) (Sep) (12.30am)
• US - Redbook index (YoY) (Nov 18), Redbook index (MoM) (Nov 18) (12.55am); Existing Home Sales (MoM) (Oct), Existing Home Sales Change (MoM) (Oct), Richmond Fed Manufacturing Index (Nov) (2am); 4-Week Bill Auction (3.30am); 5-Year Note Auction (5am)

Have a great day's trading