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Markets Morning - EM forex has a hiatus as stocks get crushed, USD a little weaker

Market Analysis /
Greg McKenna / 06 Sep 2018

Welcome to my daily Markets Musings.

You’ll see things are different from now on. That’s because the full note was approaching 2,000 words some days and I’m breaking it up into a number of reports on the Axi Blog each day now.

That way traders can subscribe to the Axi Blog easily and then cherry pick the yarns and markets of interest 

Feedback always welcome

Greg

Market Summary (7.44am Thursday, September 6)

It’s a sea of red across global stock markets again this morning. After China and Asia in general came under heavy selling pressure yesterday Europe joined the fray overnight with more substantial losses. But we should all be thankful for the relative stability of US stocks which, although down again overnight, are the only thing between where we are now and a full blown global markets rout.

Certainly that continued pressure on stocks and EM stocks markets was released a little in EM forex where the Argentine peso and Turkish lira both gained around 1.25% against the USD, while the BRL and MXN were both around 0.3-0.4% better against the Greenback overnight. But Asia’s currencies were under pressure again yesterday and any hiatus in the forex universe is just a little calm in an enduring storm.

Back to stocks then and the S&P 500 is down 0.27% at 2,888.62. That’s a fall of 8 points but 12 points off the lows. So maybe Europe may play a little catch up when it opens this afternoon – maybe. The Dow was the exception to the sea of red with a 0.1% increase to 25,974.The Nasdaq though is under pressure as the tech giants do a poor job in front of congress, as the President attacks them over election meddling, and as US attorney-general Jeff Sessions seeks to work with state counterparts to target the firms. The Nasdaq 100 is off 1.3% at 7,523 and closing in on important levels as you’ll see in the full report.

In Germany the DAX was 1.4% lower, the CAC in France fell 1.54%, and the FTSE in London was 1% lower. This was despite decent services PMI data and news that the UK and EU might be kicking the hard Brexit can down the road till after the UK leaves reports (later denied) said last night. Go figure.

Here at home after losing more than 60 points yesterday and closing on important technical support at 6,230 in ASX 200 terms SPI traders have found another 23 points of losses overnight. At 6,192 the SPI is now below both supports I highlighted yesterday and in danger of a much bigger fall.

Looking at forex now the Brexit news, along with Italian deputy PM Salvini’s promise to play nice on the deficit, and the Italian government’s announcement of a debt buyback all combined to give the Pound and Euro a lift and knock the USD off its perch. GBPUSD and EURUSD are both up o.45% at 1.2909 and 1.1631 respectively. USDJPY sits around 111.53 for a gain of 0.1%.

On the commodity bloc the USD weakness and a little rally in copper seems to have helped the Aussie which sits at 0.7193, up 0.22%. The Kiwi did better though with a 0.6% gain to 0.6592 while the CAD lagged with a gain of just 0.1% with USDCAD at 1.3172 as the BoC left rates on hold, NAFTA is still unresolved, and oil prices fell.

Speaking of which, a technical break, OPEC secretary general saying he’s worried about the impact of demand of the trade war, and the storm not hitting the Gulf of Mexico as hard as anticipated saw oil prices lower. Brent is off 1.06% at $77.34 while WTI dipped 1.4% to $68.89. Gold rose with the pound and Euro for a 0.43% gain to $1196, while copper is up 0.7% in HGc1 terms to $2.60.

Bitcoin, and cryptos more broadly, fell out of bed as Goldies said they are delaying the opening of their desk and Slip Stream is getting rid anonymity.

US 10’s are at 2.90%, the 2’s are at 2.65%, the curve is a rounded 24.5 points and th Atlanta Fed dropped the Q3 GDP guesstimate to 4.4% after the trade blowout overnight.

On the day today we get Australian trade data for July, South Korean current account, and German factory orders before the release of the Challenger and ADP precursors to tomorrow night’s non-farms. We also non-farm productivity, the Markit and ISM services PMI’s and factory orders. Not to mention the EIA crude data.

Speaking of which the API data is just out showing a crude draw of 1.2 million barrels  which a bit less than expected. Oh and a White House insider has had an anti-Trump op-ed published in the NY Times anonymously this morning.

Have a good day, it’s probably going to be better than the President’s and his staff.  

Macro Stuff that affects everyone and everything - either today or eventually

International

  • On that Trump Insider NYTime Op-Ed, you have to wonder why you’d out yourself, even anonomously. There has to be another shoe to drop. Anyway, here’s the link to the piece. And it’s worth noting my guess is the President will apoplectic. That will make him volatile. So watch out for the $200 billion in tariffs on China coming down the line.
  • EM markets continued under pressure in the past 24 hours and it seems that is likely to continue according to Bloomberg which reports, “Fund-manager positions are one of the reasons keeping Morgan Stanley’s James Lord bearish…’We stick to a bearish view across credit, rates and FX, and hold short positions across most of the high-beta space, including Indonesia and Malaysia, which are two countries we expect investors to increasingly focus on,’” Lord and fellow Morgan Stanley strategists wrote in a report this week.
  • That’s a feeling echoed, Sameer Goel, the head of macro strategy for Asia at Deutsche Bank AG in Singapore, who said in a Bloomberg TV, it’s “no longer just about EM fundamentals. It’s “increasingly about contagion, which largely happens because of cross-holdings and the pressure of redemptions.” Notice how this reinforces the first point. It seems some investors still haven’t headed for the exit. Even as prices continue to fall. Here’s the MSCI EM stock price index and MSCI EM currency index show.
Click on me, I'll expand
Click on me, I'll expand
  • But at least we don’t need to worry about Italy right? That comes after Matteo Salvin said overnight the government will try to play nice with EU rules. “We will look to respect all the rules, all the constraints and all the commitments made. We can make this country grow and make Italians better off without irritating those who watch us from on high. We will try to be good and convincing” he said (my emphasis). And it worked. Italian bonds went bid almost immediately the story broke and then the government doubled down by announcing another auction to buy back Italian debt. Nothing to see here, move along please. Here’s the Italian/German 10year spread as a result.
Click on me, I'll expand
Click on me, I'll expand
  • How does Jeff Sessions keep his job? He does President Trumps bidding. He’s clearly under the pump on the Mueller inquiry, but Trump also has the tech giants in his sights and CNBC reports Sessions has proposed a meeting with “ state officials” which “follows recent claims by President Donald Trump of political bias and censorship by major social firms”.
  • That’s important for global markets because the only thing between where we are today and a complete rout is the relative stability of US stocks. And we know a big chunk of the S&P’s rally has been the performance of tech stocks who’s rally has been going increasingly vertical. Readers know that automatically puts me on reversal watch. So I offer you this long and short term look at our Nasdaq 100 CFD. The bottom chart is the daily representation of the most recent two trends on the weekly chart at the top. Watch this space folks.
Click on me, I'll expand
Click on me, I'll expand
  • Coupla things on bonds folks. As Marc-Andre Fongern Tweeted this morning, “We are just 3 weeks away before the net liquidity injection from the Fed, ECB and BoJ goes to zero in Q4 vs $100b per month in Q4 2017”. That is a big moment. But my reply to him is also noteworthy. I highlighted that, “And only a week or two away from the change in US tax law that might stop flattening the curve”.
  • And quickly on the trade data which prompted the Atlanta Fed to drop the GDP guesstimate back, it showed a massive spike in the deficit to $50.1 billion for Julu from June’s $45.7 billion. But it was a actually a small beat to expectations. Anyway, there’s clear signs that the trade war and tariffs impacted the deficit with pull-forward of import demand and a slowdown in exports.
  • Also out was Canada’s trade data, US Maple Syrup imports have fallen 97%. Winning!

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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