Axi | Apr 24, 2018 09:36
Originally published by AxiTrader h2 Market Summary (7.43am Tuesday April 24)/h2
The US dollar is on the cusp of a range break which could see the world’s second most crowded trade bust wide open in a round of short covering is the Greenback edges just a little higher.
In index terms, the US dollar is 0.7% higher with the US Dollar Index at 90.94 – tantalisingly close to the 91 break I’ve been looking at for ages now. Euro is down at 1.2205, off 0.66%, USD/JPY is 1% higher having busted its range top and is now sitting at 108.71.
Commodity bloc currencies haven’t fared much better with the Aussie down 0.9% at 76 cents – under the trendline from the 2016 low. A break of 0.7590 opens the way to 0.7475. The kiwi is down 0.8% at 0.7150 while the Canadian dollar lost 0.6% with USD/CAD up at 1.2835.
Why the sudden US dollar surge? To me it’s a simple recognition that the bond vigilantes might be right. As US 10's (2.97%) and 2's (2.48%) continue to rise with oil and inflation expectations policy divergence is a thing again. Especially given the US economy is likely robust enough to handle the uptick in inflation whereas perhaps Europe is not.
Oh and as BlackRock (NYSE:BLK) CIO for fixed income Rick Reider told CNBC last night – US nominal GDP could hit 5% this year. BOOM!
And even though 5% nominal growth should be a boon for stocks its fear of the bond vigilantes which is keeping US equities on the back foot. 3% is just a number, just a stop on the way higher me thinks. But change of big figures are always more important than they should be – and stocks are watching closely.
So at the close, the S&P 500 snuck back into positive territory for at 0.005% gain and close at 2,670. The downside – perhaps another 100 points – still beckons my charts suggest. The Dow is 0.1% lower at 24,448, and the Nasdaq 100 is off 0.28%.
Of note today on stocks, Alphabet (NASDAQ:GOOGL) has shot the lights out with its earnings after the bell (although as I write its stock is now negative), while Alcoa (NYSE:AA), among other aluminium firms across the globe, was hammered after it emerged the US might ease/end sanctions if the oligarch who is the major shareholder in Rusal sells down. That saw aluminium prices drop 10% on the LME from the morning high at $2,534 to $2,237 before closing down 7.5% at $2,295. And of course Alcoa (NYSE:AA) lost ground closing the day 13.5% down.
To Europe now and it was a better day with the DAX up 0.25% while the CAC and FTSE were up 0.42% and 0.48% respectively. That was despite some benign flash PMI’s for the EU (composite 55.2 unchanged) outside of Germany (comp 55.3 from 55.1 last) and France (comp 56.9 from 56.3 last) which suggest growth isn’t ending but the high water mark is past.
Here at home yesterday you would have sworn the Hayne Royal Commission had uncovered nothing rather than plenty, given the performance of the banks. Miners did okay to so we had an unexpected – at least by me – rally. Overnight SPI traders saw nothing to fear and have added another 11 points to yesterday afternoon’s close. We’ll see. CPI might be important today if it’s a big miss or beat.
To other commodities now and oil bounced back from the lows it plumbed after the Iranians suggested OPEC may not extend. It may be part of a sanctions mitigation strategy to signal to the newly interested US President that Iran isn’t trying to drive oil prices to $100 – that’s the Saudis. And it was because of missile attacks in Saudi that oil did manage to climb back. WTI and Brent ended the day up 0.75% and 1.26% respectively. Copper lost 0.83% and gold fell heavily under the US dollar's onslaught – it’s back at 0.24%.
On the day today the highlight for Australian markets is the Q1 CPI. Headline is expected to print 0.5% for the quarter and 2% yoy the Reuters poll says with the trimmed means printing the same quarterly rise but an inflation rate of just 1.8%.
Tonight we get the Ifo business climate, conditions, and expectations in Germany, Case Shiller house prices in the US along with new home sales and the Conference Board consumer confidence numbers. BoE Deputy Governor Wood is speaking as well.
No report tomorrow as we observe ANZAC Day.
h2 Here's What I Picked Up (with a little more detail and a few charts)/h2 h2 International/h2Iranian nuclear sanctions deal . Over the weekend Macron said the deal is imperfect but still better than no deal. We also know that Macron and other US allies pressed the Administration on the Rusal sanctions and the impact that had had on aluminium, and other, prices. Last night the Administration gave some ground and aluminium prices fell. Now we come to the thing, oil is through the roof again this morning, momentum is on its side as traders await the early May decision on the sanctions deal. But with a very long market, a resurgent US dollar, and a newly interested president Trump in OPEC and the price of oil what if a deal can be done on Iran. Then we’d see a reversal in inflation expectations as oil traders unwind positioning. I’m getting ahead of myself here. But with oil having run this far the chance of this blow off leading to a rout are growing. Charlie’s making my life easy this morning – here’s another of his charts, this time on oil and its returns since the low.
h2 Forex/h2
h2 Commodities/h2
Have a great day's trading.
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