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
Market Summary (7.42am Wednesday August 22)
President Trump’s comments on the Fed and the currencies continued to reverberate through G10 forex markets last night as traders again focus on the battle that is likely to be foiught as the fed continues to raise rates over the coming year and wonder what the president might do or say about that and the Greenback.
That he’s theoretically got no way to remove the Fed chair or influence policy outside his bully pulpit hasn’t stopped USD bears taking up the cudgel.
So this morning the USD index is down 0.66% at 92.26 while the Euro, fresh from a stop run through 1.15 in our timezone yesterday fell back below that level before a surge saw it trade to a high of 1.1600. It’s back at 1.1569 now – up 0.8%. USDJPY is at 110.40 for a 0.3% gain. It seems to be lagging because risk appetite is ebullient.
In many ways the most remarkable performance is of the Pound which rose 0.8%, in step with the Euro. But what’s remarkable about that is there are more and more signs a hard Brexit is coming. The EU negotiator Barnier essentially said if the UK wants a deal they have to abide by EU rules – sounds like Brexit in name only and hard to get through the UK Parliament surely.
Of the commodity bloc the Kiwi made up for lost time with a 0.8% gain after trailing badly the previous day. It’s at 0.6691. The CAD is largely unchanged with USDCAD at 1.3036 while the Aussie dollar’s lock step move with the Euro has lost some of its tightness. In no small part that’s probably because yesterday’s leadership vote seems to have settled nothing for the rabble currently running the country. AUDUSD is still up 0.34% though at 0.7365 off a high of 0.7381 overnight.
Emerging market currencies continue their rolling crisis. I’ll say rolling rather than contagion because it doesn’t look or feel like that. The Brazilian real was in the firing line last night and has lost 1.73% against the USD with USDBRL at 4.0371. USDTRY is largely unchanged at 6.07, while the Greenback has lost one per cent against the South African rand and 0.6% against the Mexican peso. Of EM Asia it’s fairly quiet save for the Baht which gained 0.88% on the buck.
To stocks then and the S&P 500 set a new record high of 2,873.23 overnight – on the day it equalled the reord days in a bull run. But it couldn’t hold that high and closed at 2,863 up 0.2% and the second highest close on record. The Dow was 0.25% higher at 25,822 while the Nasdaq 100 gained 0.35%. Worth noting the Russell 2000 was 1.14% higher at 1718 – it’s own fresh record close.
BREAKING THOUGH: US stock futures are lower after news broke that former Trump lawyer Michael Cohen has done a deal including admitting to violating campaign rules at the direction of the candidate.
Europe was a little mixed. The continent did okay with the DAX up 0.43% and the CAC 0.54% higher. But the FTSE100 in London dipped 0.34%. Chinese stocks had a solid day yesterday and the Yuan has a bit of a bid. SO for the moment things have settled.
Which brings me to the absolutely appalling performance of the ASX yesterday. It’s not that the 61 point fall was unexpected. I suggested a retest of the break in my Australia today note yesterday. It’s just the selling was so aggressive and came much faster than expected. That’s what uncertainty of political leadership and the impact that will have on business and consumers can do to sentiment. Overnight though even a new record for the S&P 500 couldn’t perk up the spirits of the bulls. The SPI is down 19 points as I write. Politics here and in the US hey, :S.
Oil was higher again as prices respect support and the Iran issue continues to occupy traders minds. We’ve just seen a much larger than expected draw on the API inventory data this morning so we’ll see what that does. In the meantime, WTI is up 1.34% on the front contract – far less on the second – while Brent is 0.4% higher at $72.50. Gold is at $1194 up 0.36% while copper gained another 0.69% as the recovery continues. Recessionistas? Buelah, Buelah?
Speaking of which the US 2-10 curve is around 23 points with the 2’s at 2.61 and the 10’s at 2.84. Robert Kaplan, Dallas Fed president, said last night the Fed has 3-4 more hikes to get to neutral before he sees a pause. FWIW I agree.
Bitcoin is largely unchanged at $6,430.
On the day we get retail sales in New Zealand which might be interesting for Kiwi traders and then we the Westpac leading index and construction work done here in Australia along with a speech from Guy Debelle, RBA deputy-governor, on low inflation!!!! That’s at 1.10pm AEST. Retails sales are out in Canada and them its existing home sales in the US, EIA crude data, and then the FOMC minutes are released at 4am my time tomorrow morning
Macro Stuff that affects everyone and everything – either today or eventually
Have a great day's trading.
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