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 (7.40 am Tuesday July 24)
We learnt again yesterday what an artificial, bubble like, environment we still live in yesterday with rumours of a change in the Bank of Japan’s monetary policy triggering rising rates in Japan and across the globe.
Naturally, the BoJ entered the market to cap the increase in 10 year rates below 0.1% - not a typo. But the surge in JGB rates ignited a run higher in Australian, German, British, and US rates (among others) such that traders once again appear to be fretting about the end of the global monetary experiment that is QE and ultra-low rates.
US 10’s this morning are back up at 2.96%, the 2’s are at 2.63% and the curve is 33 points. So at least the chance of recession has receded. Too sarcastic for this early in the morning? Probably, sorry.
Anyway, while European stocks struggled with falls in London, Paris, Milan, and Frankfurt US markets were able to rally on the back of a little tech move and the financial sector getting a lift from rising rates and a slightly steeper curve.
At the close the S&P 500 is up 0.2% to 2,807 (Google’s earnings beat have futures higher though now). The Dow is down 0.1% and the Nasdaq 100 is 0.25% to the good at 7,368. But a warning folks. If the rumours that President Trump is telling associates the GDP print on Friday for Q2 in the US is going to be 4.8% there is every chance US 10’s are back up through 3% and the stocks market rally runs into a stronger headwind from rates.
US stocks also likely to run into a stronger headwind from the US dollar if we see that sort GDP print. Overnight the market has clearly made the determination that it does not need to take notice of President Trump’s disquiet over the dollar’s strength because the Fed is likely to stay it course and the US economy remains strong.
So this morning the USD selling has abated (despite weaker than expected existing home sales which fell 0.6% in June) and the dollar index is up 0.2% to 94.63, Euro has lost the same amount and is back below 1.17 at 1.1692. USDJPY which reacted so harshly to the BoJ rumours yesterday is at 111.41, roughly flat but well off the low of 110.75. Sterling is down 0.2% at 1.3102.
Of the commodity bloc the Aussie dollar has done worse after being unable to break up and through last week high in the low 0.7440’s. AUDUSD made a higher around 0.7437, but it’s back at 0.7380 this morning for a loss of 0.5% as it’s caught between the Euro and the Yuan which hit 6.80 in USDCNY terms. The Kiwi is 0.35% lower at 0.6782 while the CAD lost just 0.12% with USDCAD at 1.3165.
On commodity markets copper drifted a little in a mixed night for base metals – it fell 0.58% to $2.73 a pound. Gold lost its lustre and is back at $1223. While oil initially rose on the bellicose rhetoric from the Iranian president over the weekend which was matched by President Trump and Secretary of State Pompeo yesterday. But prices reversed as traders recognise the Saudi commitment to man the pumps. WTI fell 0.62% to $67.84 and Brent dropped back to $72.99 for a 0.1% fall off a $74.47 high overnight.
The wash up of all of the above for local stock traders is that after a big fall yesterday on the ASX SPI traders have added back 21 points of the 58 point loss yesterday.
On the day today it’s “flash” PMI day with releases in Japan, across Europe and the US giving a window into the “official” figure which will be released early next month. Other than that it’s the Richmond Fed index in the US as the other semi-interesting datapoint.
Have a great day.
Macro Stuff that affects everyone and everything – either today or eventually
Have a great day's trading.
Chief Market Strategist
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Soaring US yields trigger the wrecking ball effect as yields become a source of volatility for risk, rather than a source of support