Axi | Jan 19, 2018 09:41
Originally published by AxiTrader h2 Market Summary (7.39 am)/h2
The Dow is still above 26,000 but the S&P 500 sits either side of 2,800 as stocks give a tiny bit of yesterday’s surge back and global bond rates rise. In particular US 10-year Treasury rates have risen to 2.62% amid what has been higher rates across the globe.
One of the catalysts for the move appears to be the potential for the shutdown of the US government but equally there is more signs the global economy is reflating with the Atlanta Fed again increasing it’s guesstimate for Q4 growth to 3.4% and ECB member Benoit Couere saying the Eurozone is no longer in recovery but in expansion.
As I write, with a little under 20 minutes of trade left the S&P 500 is down 0.03% at 2,801. The Dow Jones Industrial Average is off 0.35% at 26,026, and the Nasdaq 100 is up 0.1% to 6,816. In Germany the DAX played catch up to the previous night’s move on US markets gaining 0.74% but the FTSE in London lost about a third of a percent.
Here at home after a solid employment report but lacklustre day on the S&P/ASX 200, SPI traders have added around 15 points overnight to 5,970. For the outlook to turn though prices need to best 6,000.
On forex markets the Aussie dollar was strangely weak after the very solid employment data yesterday. But it found support around now what’s the past 3 days lows and has risen overnight on the back of the weaker US dollar. It’s at 0.7993 this morning up 0.3%. Elsewhere chat of the shutdown and more progress on Brexit has helped the euro (1.2233) and British pound (1.3881) rally about 0.4%. USD/JPY is back near 111 at 11.09 but the Canadian dollar missed out on the moves as traders fret a little about NAFTA.
On commodity markets there was a bigger than expected draw in US crude inventories but also a lift in US production, and OPEC report that supply outside the group will increase in the year ahead. So oil prices are fairly flat with WTI at $63.99 and Brent at $68.98. Copper is a little higher at $3.20 a pound while gold is at $1,326 – largely unchanged.
On the day ahead we get the NZ business PMI, Eura Area trade, and oil market report from the Paris based IEA and British retail sales. In the US it’s Michigan consumer sentiment and inflation expectations.
h2 Here's What I Picked Up (with a little more detail and a few charts)/h2 h2 International/h2an FT article last night suggests that Apple’s repatriation may actually cause a few ructions in the corporate bond market as it withdraws from the market to pay out or invest some of it cash pile. Alexandra Scaggs writes “About $153bn of its portfolio was invested in corporate bonds at the end of September, a greater amount than the bonds issued by all investment-grade tech companies in 2017, which totaled $150bn. That means some extra space in US companies’ capital structures that could end up dispersed among a broader group of fixed-income investors”. In other words, like the Fed withdrawing as the marginal buyer in bonds so too may Apple withdraw from the corporate market. Both effectively put upward pressure on bond rates and downward pressure on bond prices. Oh, and President Trump is pretty excited about Apple bringing the cash home calling it a “huge win for the US”.
You will have read the many positive takes on yesterday’s very solid employment data. Not only did it confirm that in the two months to end 2017 the Australian economy (on a seasonally adjusted basis) is estimated to have created close to 100,000 jobs but that over the course of the full year that number is a stonkingly strong 400,000 odd jobs.
Superb news and the single best salve to all the worries many of us hold about the outlook for households, consumption and the headwinds they face.
But according to my mate David Flanagan at Curve Securities in Sydney (disclaimer David and I worked together) there might be a really solid signal in the fall in under-utilised workers which suggest Australians might finally be in for some decent wages gains.
Flano says, “If we take a look at the underemployment ratio of employed persons graph it against an inverted wage cost index chart, we can see the two move in the same direction. The wage cost index has around a six month lag when it comes to movement in the underemployment ratio. The positive sign is that over the past six months, the underemployment ratio has started to edge lower. While it is still early days, it is certainly a positive sign for wages over the months ahead”. Check out the chart.
Now it’s not saying wages are about to explode. But it does suggest the strength of the Australian economy and the jobs it’s creating is changing the outlook for wages. That’s good for households.
h2 Forex/h2
Have a great day's trading.
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