Australia Today - SPI traders given back yesterday's gains, AUDUSD stabilises

Market Analysis /
Greg McKenna / 16 Aug 2018

Welcome to my Australia Today column where I'll have a look at some economics, the Aussie dollar, and the outlook for the ASX200 and SPI. 

As every Feedback is welcome

THE AUSTRALIAN DOLLAR

This morning copper is down 3.6% in HGc1 terms to $2.5795 (nicely done Peter L Brandt who called this week’s back) other base metals are lower too while BHP lost more than 5% in overnight trade, Glencore lost about the same amount, Vale is down 4%, Anglo American is down a whopping 6% and Rio is off and almost benign 3.3% in London.

But the Aussie climbed off the mat at 72 cents and is at 0.7235 down 0.12%.  

Indeed, yesterday 72 cents held with a low at 0.7203ish and I’m wondering if I’ve been looking at the wrong charts.

Before I get to that though it is pretty clear the pressure is on the Aussie right now both form the falls in the Euro and also of Copper. Both have been very solid directional indicators of the AUDUSD movements. Though I’d say the movements with the EURO on a 30 minutes basis over the last 10 days are almost lockstep and thus stronger.

Click on me, I'll expand
Click on me, I'll expand

All that tells you is that this is as much about the USD as it about Turkey or China. And that’s the key medium term, isn’t it? The USD didn’t get a lift from retail sales last night which is a sign maybe the Dollar’s run needs a breather. That would aid the AUDUSD and facilitate a rally. And of course, we have the employment data today which is going to be very important for the Aussie dollar. But overall the downtrend remains intact and lower levels beckon in time.

Speaking of that chart, here’s an old one of the Aussie I stumbled across in my research this morning. It's a weekly 20year chart of the AUDUSD. You can see the tentative, two-touch line, but it's holding for for now.  

Click on me, I'll expand
Click on me, I'll expand

On the day the levels I'm watching are 0.7245/55 as resistance before 0.7275 and 0.7302. Support is 72 cents, then 0.7174 and 0.7125/50. 

ASX INDEXES

SPI traders have rained on the little party we had on the ASX yesterday when traders ignored the world and just hit the buy button. The ASX finished up 0.5% at 6,329 but with the SPI off 56 points overnight that’s looking like another false break above 6,300. We’ll see.

I jokingly write often on Twitter and here some days about one market or another reminding me of that TISM song about River Phoenix. Yesterday’s move on the ASX was one of those day’s where I felt it was not joke. What prescription medicines had the ASX trader been taking during the day. I know, I know, one days move is just noise and quite frankly often I’m rubbish at picking exactly what the day will bring in index terms. But yesterday’s move was in contrast to everything else that was going on around the world. In China, in Japan, in most Asian stocks, in currencies, and commodities.

So I railed against it on Twitter yesterday afternoon and I sold some SPI before I went to bed last night around 8.30pm (4am starts are killers, especially this week with the other stuff I have on) and this morning I’m feeling a little Roosterish after the SPI’s fall overnight. But the reality is I could be a feather duster by the close of play if the siren song of dividends drags folks back into the market. We’ll see.

Looking at the SPI chart it is a very ugly up candle. Yes, even after that fall overnight the market is still up day on day (full turn of the global markets clock and MT4 day) and the SPI is off the lows of 6,206 (not a typo). The long-legged candle, and the fact price ended in the bottom third tells you the bears won the day and yesterday qualifies as a false break. The question of what’s next really is about the US and the S&P in particular. The local market has shown itself able to ignore Asia and just focus on US market movements. So I’ll be watching US futures and the bottom of the Bollinger band at 6,183. I might give my short a little run…..

Click on me, I'll expand
Click on me, I'll expand

A LITTLE ON THE ECONOMY

Wages growth yesterday was right on the money with a lowish 2.1% annual growth rate. SO it's no wonder the Westpac Consumer Sentiment survey was a little downbeat. 

I’m just going to repeat what I said on Twitter yesterday – the Westpac consumer sentiment numbers was a disquieting release. All measures fell. Sentiment, family finances, the economy, while expectations of unemployment rose. Sure the time to buy a house bit did actually lift. But the overall tone of the release was poor.

Source: Westpac Economics
Source: Westpac Economics

Westpac’s Bill Evans said, “the Reserve Bank still expects inflation to lift to 2.25% by 2020 and anticipates that the next move in the cash rate will be up. An obvious headwind to the Bank’s plan to move inflation back into the target zone is the impact that five years of underperformance in inflation will have on households’ and firms’ expectations. Lower expectations will make it that much more difficult to lift inflation back into the band. Price expectations impact households’ wage expectations and claims, while firms’ pricing decisions are also influenced by expectations…Certainly it will be quite sometime before the Bank has a case to adjust the cash rate…Westpac reaffirms its view that rates will remain on hold in both 2018 and 2019”. I agree.

DATA:

On the day the big one here in Australia is employment. The market is expecting another 15,000 new jobs after last month’s huge 50.900 increase. But I noticed the big lift in the Westpac unemployment expectations index in yesterday’s Consumer Sentiment survey. Do they know something? We’ll know at 11.30am this morning – standby.

Offshore we get Chinese FDI, UK retail sales, EU trade, and then housing data, jobless claims and the Philly Fed index in the US.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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