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Markets Morning - Stocks lower after sales tax ruling, USD on the back foot, OPEC edging toward a new deal

Market Analysis /
Greg McKenna / 22 Jun 2018

Welcome to my daily Markets Musings.

Feedback always welcome


Market Summary (7.46 am Friday June 22)

Was it the Daimler profit warning which brought the chickens of the trade war home to roost or was it the US Supreme Court ruling that online retailers must charge sales tax even if they don’t have a physical presence in a state which knocked stocks.

Either way stocks are lower this morning with the S&P 500 down around 0.6% at 2,749 – just above the low of the week. The Dow is down around 0.8%  at 24,461 while understandably, given the ruling effects online tech firms, the Nasdaq is 9% lower at 7,217.     

In Europe, the fact Daimler’s warning was about the impact of trade tensions on earnings he focus was on the fallout of this trade war and the impact on Europe. So at the close the DAX was 1.44%, the CAC was 1.05%, while Italy suffered on the political front again as well with the FTSE MIB off 2%.

In London, the surprising hawkish hold by the BoE’s MOC with a 6-3 vote helped the Pound rally a little more than half a percent to 1.3244 while the FTSE 100 was down 0.93%. The BoE decision was a surprise given recent data flow – that it was chief economist Andrew Haldane who joined the rate hikers gave the move more resonance because of his solid credibility with markets.

Here at home SPI traders are betting that after an amazing run which took the ASX200 to another 10 year high and close yesterday that stocks will be lower today. The Sep SPI is down 30 at 6,152.

To forex now and besides the move in Sterling Euro had a big reversal off an overnight low around 1.1509 and sits 100 points higher at 1.1609. Some blame for the weaker USD – DXY at 94.83 - has been laid at the feet of the disappointing Philly Fed print last night (+19.9  v 29 exp and 34.4 last). But I’m not convinced. It’s as likely that the ability of Euro to hold 1.15 again saw a short squeeze.

Elsewhere on forex markets, USDJPY fell 0.355 to 109.98 – losing ground as stocks slipped a bit. But that hasn’t hurt the commodity bloc with the Aussie dollar up 0.16% against the Greenback at 0.7379. The Kiwi climbed back from the disquiet over yesterday’s GDP release and its up 0.2% at 0.6874 while the CAD is flat with USDCAD at 1.3305.

Naturally oil markets have been interesting as OPEC and the non-OPEC group lead by Russia seek to increase production to alleviate pressure on big buyers like India and the United States. Brent is down 2.22% at $73.10 as traders bet the Saudi increase of 1 million barrels or more will get up. Worth noting though is that the improved mood which seemed to suggest the Iranians are okay with a deal has ignored the fact oil minister Zanganeh said “I don’t think we can reach agreement”. We’ll see. WTI was quieter with the front contract flat around $65.75.

Copper was down another half a percent at $3.025 a pound while gold remains under pressure at $1267. Bitcoin is at $6720 down a quarter percent and trading more like a currency every day – an emerging one sure. But a currency nonetheless.

And finally, US 10’s are back at 2.8986% down about 4 points while the 2 year is at 2.54%.

On the day ahead the actual decision by OPEC and its partners – which may not actually become apparent until Saturday – is the big one traders are watching. There is also an EU EcoFin meeting and the Japanese CPI is out as well this morning. It’s also Markit flash PMI day across the globe and we’ll also get Canadian retail sales and CPI tonight.

Have a great day, fabulous weekend and GO COLLINGWOOD.    

Here's What I Picked Up (with a little more detail and a few charts)


  • The US is NOT in a hurry to back down over this trade war. I know, I know, you are sick of hearing it from me. But it’s important. Last night the IMF said they’ll be downgrading the outlook for EU growth. We heard from Daimler about the impact of the trade tensions on sales, and there are a growing number of stories about the chance of China directly targeting US firms who do business in the country. What comes to pass is still uncertain in that regard.
  • What’s not uncertain though is the resolve of Commerce Secretary Ross to pursue China and try to change it – and other nations – actions.  CNBC reports that Ross said (my bolding), “What we have to do is create an environment where it’s more painful for these parties that have these huge trade barriers, both tariff and non-tariff, got to make it more painful for them to keep those barriers than to get rid of them…In the particular case of China, it’s compounded by their disrespect of intellectual property, the forced technology transfers, the cybersecurity breaches”. No equivocating there.
  • And that’s important when I see a sanguine attitude of stocks traders and risk assets (largely anyway compared to how funky things could get). To that end I offer you this chart of our futures based S&P 500 CFD. Naturally we need to take out the low for the week. But I’m now targeting 2,717. That should have implications for our own market here in Australia.   
Click on me, I'll expand
Click on me, I'll expand
  • And germane to this discussion about the impact of the trade war on stocks – and then risk assets -  is a tweet I saw from Zerohedge which quotes BofA research which shows 40% of the margin expansion in the last 20 years has come from globalisation. Clearly some of that is at risk. So ZH then went back and looked at a Barclays chart showing what sectors are at risk from a trade war. Online retailers might have been under pressure last night from the Supreme court ruling. But this is the big risk for the outlook. I’ve combined the two charts into one pic – but you can read the ZH article here.
Source: ZeroHedge
Source: ZeroHedge


  • I’m not going to bang on too much about the ASX’s stellar performance. My rhetorical self stills ses it as a ridiculous move. But my trading self that maybe enough is enough for this run. That’s because the CBA has had it’s 38.2% retracement of the recent big fall so the easy money in this reversal, the garden variety retracement for the banks might be behind us. And that means at an index level the easy money of this rally might be done too. The high could be in for this run yesterday. Especially given the price action on overseas markets and commodity prices. The last 24 hours candle on the SPI 200 speaks for itself.
Click on me, I'll expand
Click on me, I'll expand
  • The Aussie dollar again made a lower high yesterday. For for the first time in 6 days it was actually an up day for the AUDUSD, if an indecisive one. 0.7405/10 is now the short term key to the price action. A break would open a run to 0.7425 then 0.7450. Overall thought the downtrend remains intact even though the short term technical outlook might be improving – as long as stocks don’t tank that is.    


  • I wrote in the introduction that “some blame” the USD’s fall on the Philly Fed number. I said that because while it’s true the dollar fell AFTER the data it’s not true we can say the USD fell BECAUSE of the data. Indeed in scrolling through my research this morning I noticed articles headlined that the USD had held up after the Philly Fed which were then changed in subsequent news articles to USD fell after – same newswire. I highlight it to show that often the narrative is written to fit the facts to the price action. I try not to do that, but I’m sure I probably fall into the same trap some times.
  • Anyway as I also said in the intro my sense is the dollar went offered and the Euro bid in what looks to me like a very neat short squeeze after 1.15 held again for the EURUSD overnight. And why wouldn’t you get a squeeze back from support which has held again. That’s the way the market works. Traders have a pop at a level, it holds, the smart ones say “nothing ventured nothing gained” and get out, the slow ones say “it’s going to give way”, and then the smart ones have a pop at driving the slow ones to their stops. Thus we get the short squeeze. Short term 1.1640 is resistance for the Euro. A break of that level and we might get a run back to the 1.1730 region.
Click on me, I'll expand
Click on me, I'll expand
  • I got the Bank of England wrong yesterday. I thought the raft of ordinary data would be enough to keep the MPC vote at 7-2. That Andrew Haldane, one of my favourite central banking figures on the planet, had cause to vote for a rate hike gives me pause to go back and re-examine the flow of data that I have been seeing as negative.   Indeed the CESI for the UK is -46.7 so I’m surprised Haldane moved his vote. But it’s time to re-examine the outlook to see if I can see what he see’s. I’ll report back next week.
  • For the moment though GBPUSD has had a bullish engulfing day, so too has EURUSD actually, which suggests a run toward 1.3320, perhaps a little higher.  


  • It seems we are going to get a deal to increase production. And it’s a deal the size of which has been walked up it from the 300-600 thousand bpd a few days back to three scenarios from 1 million to 1.8 million bpd based on “sources” and Twitter this morning. BUT, even though Brent reacted aggressively by falling out of bed it seems the Iranians are not absolutely convinced.
  • Bloomberg reports, Iran’s Oil Minister Bijan Namdar Zanganeh told reporters, “It wasn’t a good meeting. There were proposals but I don’t think we can reach an agreement”. But the Saudis are still pushing ahead with Saudi oil minister Khalid al Falih taking the customers side ( yeah I know, hard not to wonder what’s the deal with that). He said, “Our costumers have spoken loudly and we must listen to them… The most important thing is the consumers, and consumers are asking for more supply in the second half when demand is rising”. So we’ll see how things transpire though it seems the deal has momentum and the Iranians are one out.
  • To the Brent chart then and the downtrend persists. I’m still targeting a move toward $71.00/50
Click on me, I'll expand
Click on me, I'll expand

Have a great day's trading.

Greg McKenna

Chief Market Strategist


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