Axi | Jul 12, 2018 09:22
Originally published by AxiTrader h2 Market Summary (7.44 am Thursday, July 12)/h2
It’s not just the political playbook that’s been thrown out the window during this Trump Presidency. It seems that some of the long established linkages between cause and effect, market price action and reaction has broken down as well.
Take gold, for example. It used to be a safe haven and would usually be soaring amid all the current turmoil. Yet it’s on it’s recent lows again. Likewise the yen. Considered the forex traders safe haven in times of trouble, it should have rallied these past 24 hours, yet USD/JPY has risen almost 1% since 7am yesterday as it trades above 112 for the first time since early January this year. In fact gold and the yen collapsed in lockstep overnight with the shiny stuff now trading at $1242 down a little more than 1%.
We live in increasingly fractious and interesting times.
Anyway the big story, of course, is the trade war, the escalation by the US with the planned imposition of $200 billion in tariffs, the funk that caused in Chinese markets yesterday, the related funk in commodity markets, selling in stocks, and – for the first time this year – US dollar buying on the back of trade fears, NOT selling.
In many ways the US dollar's move restores my faith that markets aren’t completely broken. The US economy is in the best shape to withstand this trade battle, the Fed is in a different place to other central banks (US PPI accelerated to 2.8% yoy in June, and as a result the dollar has caught a bid. All makes sense, though I did think the yen might resist).
Besides USD/JPY’s big move, the Aussie and kiwi have both been caught in the maelstrom of market moves and lost 1.22% and 1.14% respectively to sit at 0.7366 and 0.6758 this morning. The Canadian dollar lost 0.72% with USD/CAD up at 1.3208 despite the BoC hiking rates 25 basis points overnight on upgraded economic and inflation forecasts. Euro and Sterling did best of the majors losing around 0.55% apiece to sit at 1.1674 and 1.3203.
And coming in for special mention is the Norwegian krone, which lost 1.1% with USD/NOK rising to 8.10 after oil collapsed 6% in Brent's case to $74.08 and a little under 5% lower in the case of WTI which is at $70.60 this morning. Those moves were despite a monster draw in US inventories of 12.6 million barrels. Libya is back on line though.
In other commodity news, copper collapsed 3.2% to $2.737 a pound in what’s been a tough day for industrial metals. Bitcoin is almost the paradigm of stability having lost just 0.5% to $6350.
To stocks and bonds then and the ability of US 2 and 10-year rates to hold in the face of all the stock carnage is interesting. The 2’s are at 2.57% while the 10’s are at 2.84% with the curve at 26 points. That stability is despite falls of more than 1% in China, most of Asia, and Europe where the DAX lost 1.5%, the CAC dropped a similar amount and the FTSE 100 fell 1.3% in London.
It was nowhere near as bad in the US with the S&P finishing down 0.7% at 2,774. The Dow was 0.88% lower at 24,700 and the Nasdaq 100 lost just 0.53% to 7,243. Here at home the SPI traders are their irrepressible selves subtracting just 6 points overnight suggest things shouldn’t be too bad here today on the ASX – I’m not convinced, especially if 6,209 breaks.
On the day it’s fairly quite with consumer inflation expectations in Australia, Japanese foreign investor data, a BoK decision, and then tonight we get German and French inflation along with Euro area industrial production and the minutes to the recent ECB meeting. In the US we get the CPI which will be a huge tell for the Fed and thus markets.
h2 Here's What I Picked Up (with a little more detail and a few charts)/h2 h2 International/h2
h2 Australia/h2
h2 Forex/h2
Have a great day's trading.
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