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
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Market Summary (7.49 am Wednesday July 18)
Fed chair Jerome Powell gave exactly the address I thought he would to Congress last night and that buoyed both the US dollar and US stocks. That’s because he message was one of continued US economic strength and continue gradual increases in US front-end interest rates by the Fed.
The high level summary is that he focussed on the Fed’s base case but acknowledged the risk case associated with trade tensions. But he said for now the risks the down side are roughly balanced with the risks to the upside for growth. His focus was that the labour market continues to be strong, inflation is “close” to the 2% target and “recent data has been encouraging”. He noted there were solid tailwinds to growth and that as a result the “best way forward is to keep gradually raising” the Fed funds rate. There was a “for now’ in there though. So we know the Powell Fed is a data dependent, not dogmatic one.
Anyway stocks and forex bulls liked that, while futures pricing shows the chance of the 4th rate hike this year in December has now risen to 65%.
So this morning the USD index is up half a percent at 94.97. USDJPY has mapped that move higher to 112.82 while the Euro lost 0.4% to be at 1.1663. That the Euro’s weakness didn’t get a nudge from dovish comments from Oli Rehn is interesting. GBPUSD has been caught up in the maelstrom of Brexit shenanigans (PM May even tried to send the Commons into recess and summer holidays early), Mark Carney saying a Hard Brexit would impact rates, good employment but no wages growth, and of course the USD’s move – it’s at 1.3112, down 0.9% giving up substantial early gains.
Indeed the USD had been under pressure before Powell’s speech. That saw the Aussie peak at 0.7438. But it’s back at 0.7388 – on ST support – for a loss of 0.4%. The Kiwi was also sharply higher at one point yesterday after the RBNZ’s preferred inflation gauge accelerated to the lofty height of 1.7%. A 7 year high which drove NZDUSD back to resistance with a high at 0.6840. It’s at 0.6781 now, up 0.1%. The CAD lost 0.4% and is at 1.3186 – still respecting that trendline.
To stocks then and a positive outlook for the economy and mostly solid earnings are helping sentiment in US stocks even as the BAML institutional survey shows global money managers are their least optimistic on equities in some time. This morning the S&P is up 11 points, 0.4% to 2,809. The Dow is 0.22% higher at 25,119 while the Nasdaq 100 rose 0.64% to 7,405.
Europe took the US rather than Chinese lead and closed in the black. The DAX was 0.8% higher, the CAC rose 0.24% and the FTSE100 was up 0.34%. Here at home after a bit of carnage yesterday on the local market SPI traders have added 19 points overnight. What’s interesting about that is despite the weakness we saw in industrial metals global miners were up. So it night be a good day here on the ASX.
Oil recovered from early lows on more concerns about supply out of Venezuela and Libya where, respectively, production facilities are being shuttered for maintenance and another force majeure at a port was declared. WTI is flat at $68.05 while Brent was up 0.1% to $72.00. That was the story till the API data anyway. Both Brent and WTI are lower now, down 0.4% and 0.7% respectively. Copper is lower this morning, losing around 0.6% to $2.74.
Gold is gone. Gone, gone, gone with a break of important support in the $1235/40 region signalling a test to, perhaps below, $1200. The bears will be out in force. A break of $1200 and I can see $1125 on my charts.
But anti-gold, Bitcoin, is higher, having leaped almost 10% as the recovery in it and other Crypto’s continues. There is talk of ETF’s again, of “institutional” interest, of IBM getting involved in Cryptos, and of course Blackrock sniffing around. And of course the techs – as I highlighted in my video yesterday – supported higher prices. BTCUSD is at $7,320 – NOT A TYPO!
It’s a quiet day in Asia for data with the Westpac Leading index for Australia the only release of note. Tonight though UK inflation data – RPI, PPI, and CPI – are out along with Euro area CPI. They could move the needle on forex rates. Tonight Powell is back on Capitol Hill giving his second round of testimony and we also get housing starts and building approvals along with the Beige Book. That might be interesting at 4am tomorrow morning.
Have a great day.
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Chief Market Strategist
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies