Originally published by AxiTrader
Welcome to my daily Markets Musings.
As my dad would have said, I’m crook as Rookwood today. So I’ll need to keep this short.
Feedback always welcome
Greg
Market Summary (7.30 am Tuesday April 10)
Mmmmm….short-termism reigns in markets and volatility continues to be the new black.
I know, I know, most folks are only ever interested when there is downside volatility not the upside vol we saw again last night. But what is important about the price action on the S&P 500 – as a benchmark – is that it’s high of 2,653 was both below Friday’s low and a solid 40 points above the close at 6am Sydney time this morning.
Indeed, at the close, the S&P 500 finished at 2,613 for a gain of 0.33%, 9 points. That means the S&P 500 had an inside day Monday after Friday’s big fall. So all we know then is the market is not sure what to do and short term traders have the ball at the moment. It seems part of the catalyst for the fall from the highs mostly came in the last hour of trade when news broke of another raid by Robert Mueller’s investigators. Tech stocks did well but were also well off their highs with the Nasdaq 100 closing at 6,472 up 0.6% while the Dow rose just 0.2% and closed at 23,979.
European stocks were mildly positive but not overly so with the DAX, CAC, and FTSE all up between 0.1% and 0.2%. Russian stocks and the Rouble however were belted as investors reacted to the latest round of US sanctions. The Turkish lira is also under intense pressure again.
Here at home we had a better day than could have been expected after the weekend’s close in the US. But S&P futures opened up strongly out of the gate yesterday which was the salve the S&P/ASX 200 needed. So we managed to close at 5,808 yesterday afternoon. But overnight SPI traders have wiped off just 3 points with the June contract at 5,789.
On forex markets the US dollar is under pressure again. USD/JPY is down at 106.73 for a fall of 0.17% on the day but that’s about 50 points off yesterday’s high. The euro is higher as well back up at 1.2321 despite both the ECB deputy and chief economist warning about the outlook for growth and rates and despite weak German export data. Sterling is higher as well, up 0.3% to 1.4130.
For the commodity bloc it was an interesting night. The Aussie dollar was under intense pressure during European trade falling to a low around 0.7650/52 before it caught a bid at the same time the Canadian dollar and kiwi also powered higher against the US dollar, which lifted AUD/USD to 0.7710. It’s back at 0.7696 now. Kiwi is at 0.7304 – I know, amazing – and USD/CAD is down at 1.2705.
US Bonds are fairly calm with the 10's at 2.78% and the 2's at 2.28%.
On commodity markets aluminium rose most of the base metals complex as one of the globes big suppliers was caught in the Russian sanctions. Copper was also higher up about half a percent – a third of Ali’s rise – to $3.06 a pound. Oil surged on the Syrian missile strikes and worries that the President may send US missiles into the country after the recent gas attack – the Russians say they found no trace of gas by the way. So we have WTI up 2% at $63.31 and Brent up 2.2% to $68.58. Gold has inched a little higher to $1336 – but still essentially in the middle of the current range.
On the day today we get my favourite indicator of Australian growth with the release of the latest NAB business survey. That’s out at 11.30am which is when President Xi will take the podium at the Boao forum. This is the big one for the day. US PPI is the big one tonight as a lead in to tomorrow night’s CPI.
Oh, and yesterday, I put together a little piece where I tried to get the signal from all the noise in markets and around trade at the moment. President Xi’s speech today is key. But in the run-up here’s a look at what’s going on. The key is most markets are in a range at present as trends have waned. So we are waiting for the next shoe, a range break, to drop.
Here's What I Picked Up (with a little more detail and a few charts)
International
- President Trump is not 100% wrong. That is something that has become obvious in the past 6 or so weeks as what was previously unspeakable – China’s trade approach, IP incursions, and tariffs walls – seems to have been accepted as conventional wisdom. I even heard one of my favourite and senior Journos tell an Administration member in an interview that we all know about China’s policies as though its always been top of mind and on the tip of interviewers tongues. I find the lack of recognition that the President, and Wilbur Ross, voiced concerns many held but were to afraid to say most disingenuous.
- Why am I ranting about this? Well, besides my aches making me grumpy, its important to understand the narrative and the paradigm we are in. That is, folks negativity toward the President is being reflected in their views on the US dollar and the US economic outlook. IF, yes if, and it’s a big if, this trade dispute gets resolved I wouldn’t want to be caught short stocks or the US dollar because the narrative could shift very quickly from dour to a rather more positive outlook especially for the US dollar.
- And on that topic of a potentially booming US economy, and the debt that comes from Tax cuts former Fed chair Janet Yellen was among a number of academics who put there name to a piece in the Washington Post which included the following on growth…”Last year’s Tax Cuts and Jobs Act turned that economic logic on its head. The economy was already at or close to full employment and did not need a boost. This year’s bipartisan spending agreement contributed further to the ill-timed stimulus. The Federal Reserve will have to act to make sure the economy does not overheat”. Yes folks, while Europe is slowing, while the rest of the developed world is struggling the US is likely to grow so strongly the Fed will have to continue to get busy. I know it’s unfashionable to rail against the dominant narrative, and I recognise President Xi might crank the handle on rhetoric today. But if the trade dispute can be worked through without a trade war the US dollar may be back in favour and policy divergence a thing.
- And I can’t mention the above article Yellen put her name to without also noting the CBO’s estimate on debt and deficits. The CBO said, “Over the next decade, the gap between outlays and revenues is projected to be persistently large” and that means “that imbalance would cause federal debt held by the public to rise to nearly 100 percent of GDP”. On growth the CBO said, “In CBO’s projections, the economy grows relatively quickly this year and next and then more slowly in the following several years”.
- To Europe now and the German trade data was a shocker. The market had expected exports to grow 0.35% with imports up 0.3%. But the data for February showed instead that exports fell 3.2% while imports dropped 1.3%. Both those outcomes were below the bottom of the range of forecasts contained in the Reuters poll of forecasters. What that data did was also reinforce the weakness in EU dataflow recently. The CESI for Europe has now fallen to -86.7. But don’t tell the EUR/USD bulls…Shhh, they’re sleeping.
- But the ECB is not. While it has signalled a willingness to end the emergency QE measures soon there has been a distinctly dovish tilt in the rhetoric from speakers recently. Overnight governing council member Benoit Coeure said that even though he doesn’t thing growth in the EU is slowing (ahem) interest rates will remain at current levels for a long time, even after the end to asset purchases. His colleague, and ECB vice-president Vitor Constancio said that the ECB needs to be cautious not to make policy restrictive – remember that will include the Euro’s level – derailing inflation. ECB chief economist Peter Praet was also out saying the “ample degree of monetary stimulus remains necessary” in the EU even though “the governing council judges that the three criteria for sustained adjustment have been met” and as a result “net asset purchases will expire soon”.
- Lest I forget, chief economic cheerleader Larry Kudlow was again belting out the mantra of negotiations with China. I certainly hope so. We’ll see what President Xi says – or not as may be the case – today.
Australia
- Are you worried about Australian housing and its potential impact on economic growth? I am. Conventional wisdom is that prices won’t fall too far and that maybe a 5% dip will be the nadir. But I ask you, WHY? There is quite a bit of the same behaviour that drove Bitcoin to $20,000 embedded in the Australian, especially Sydney and Melbourne, property prices – FOMO, Greed, and HODL. At present, it’s the top 25% of housing that is suffering the worst of the declines. But in a market where everything is relative – as it is in housing - my expectation is that this weakness will leak into the mid and lower tiers of the housing markets. That’s going to be important for consumption. Already Nick Politis, well known Roosters supporter and 36% shareholder of listed car seller AP Eagers, has said that the wealth effect drove high-end vehicle sales and will pull them back down. “In Western Australia you saw what happened when mining crashed,” Mr Politis told the AFR. My own anecdote – not evidence – is that I was contacted last week by a salesman from a luxury dealership about an enquiry I made in 2016, when I eventually fixed my brain fade and bought a Toyota. Anyway, something to watch.
- To the markets now and stocks are messy driven by the messiness of the US and the tariff and trade battle. The day to day machinations are just that. But the broader perspective is that the ASX and SPI are in a broad trading range. Here’s the chart for the past 18 months. It’s a very big range – but just a range.
- The Australian dollar has had a bit of a wild ride, relatively anyway given it traded down toward the bottom of the recent range back above 77 cents overnight. But the context around that move is the 20 day average true range is currently running at 59 points – roughly the range of AUD/USD over the past 24 hours. So, I would simply say there is no information in the Aussie’s price action save for one very important point. The lows held again. Which is actually important.
- The release of the NAB business survey today might change that however. Coming of record highs in conditions with solid levels of confidence, trading, profitability, and employment intentions there is a risk of a pullback in the NAB’s survey. But as we’ve seen in some of the industry PMI’s so far this month it’s more likely the strength in the business sector has been maintained. That’s bullish for the Aussie with the US dollar under pressure.
- But as the globes deepest and most liquid forex growth and risk proxy what president Xi says today and how that filters into sentiment, stock market price action, and risk appetite or aversion, is likely to be far more important. The levels I’m watching today are 0.7640/50 and 0.7720 then 40. A break of either 40 will really get things moving.
Forex
- For my thoughts on Forex right now as we await President Xi please see my Signal and Noise piece.
- You can read that here.
Commodities
- Syria may not pump much oil but that doesn’t mean what’s happening in Syria isn’t important for oil markets. The Iranians are right in the midst of all this and they are right in the sights of the Saudis and Israelis it seems as well. So the risk of escalation remains high. For the moment though oil is in a range and in particular WTI has just bounced off the bottom of the wedge support. Here’s the chart.
Have a great day's trading.