Welcome to my daily Markets Musings.
Feedback always welcome
Market Summary (8.36 am Monday June 25)
Are you still holding out hope that the Trump Administration is just aggressively negotiating and the whole trade war idea is just a meme that will fade?
If you are you might want to wonder why the PBOC has again lowered the RRR for Chinese banks and in doing so injected more than $100 billion into the economy in order to both shore it up and ready it for a further escalation in trade tensions with the United States.
And right on cue this morning President Trump – following his aggressive auto tweet Friday - has tweeted countries must “remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A.”
Markets are far too Panglossian about the impact of this and the chance of a protracted escalation.
Back to Friday's price action then and the OPEC deal ended up being a fizzer. All the ducks and drakes about the headline increase and the real “wet barrel” impact, plus the obfuscation about the original deal being maintained gave traders the sense this was more about lip service to consumers than any concrete effort to rein in prices.
Anyway, it seems if compliance goes back to 100% 1 million bpd could result but it will be closer to 600 bpd before new disruptions like Libya and scheduled North Sea maintenance. So WTI and Brent shot 4.6% and 3.4% higher to $68.58 and $75.55 respectively at the close. This though Brent is getting belted and is at $74.17 while the Second WTI contract has lost half a percent and the front is flat.
Friday's leap in oil helped energy company shares which in turn helped bourses in the US and Europe. The FTSE in London rose 1.67%, the DAX was 0.54%, while the CAC played catch up after the previous day’s move and rose 1.34%.
In the US the S&P 500 has a curious down day but finished 5 points higher at 2,754 for a loss of 0.2% while the Dow rose half a percent to 24,580. The Nasdaq 100 dipped 0.28% and the Russel 2000 was 0.2% lower.
SPI traders are betting it all sets up a better day here at home adding 13 points to the September SPI when trade closed Saturday morning. Worth noting after last week’s amazing recovery for the big banks is that the Royal Commission is on again this week.
To forex markets and just when traders appear to have gone net long US dollars (CFTC data released Friday) the Greenback is on the back foot as the data flow slips and traders respect the fact Euro held 1.15 so impressively last Thursday.
Euro is at 1.1661 this morning while the Aussie dollar went along for the short squeeze ride as well and is back at 0.7437 this morning – still sounds weak though doesn’t it. Seventy-four thirty-seven. Yeah that’s not strong. The Kiwi is at 0.6912 and the CAD is at 1.3269 which really shows the reversal in the USD Friday because Cnadian retail sales and inflation data missed big time. USDJPY is at 109.81 while the Pound is currently sitting at 1.3246 against the USD.
US 2’s are at 2.55% while the 10’s are at 2.90% after the flash PMI’s were lower than last month but a little better than expected.
Besides oil there was a distinct lack of action on the commodity markets I follow. Gold is at $1268, still pressured. Copper sits at $3.03 against a mixed backdrop for industrial commodities where zinc and lead were pressured but nickel rose strongly.
Bitcoin is closing to gone after a break lower – it’s at $61822this morning and has to hold $5,950 to avoid a run to $3000 maybe even $873.
It’s quiet today. German Ifo is out tonight and then the Chicago Fed National Activity index is out.
Have a great day
Here's What I Picked Up (with a little more detail and a few charts)
- There has been a lot of coverage about Fed chair Jerome Powell’s comment that the Fed is already seeing the uncertainty around the trade war impact investment decision in the US. It’s something I mentioned last week that might showup in the next round of PMI and ISM data that’s we’ll see as we kick off July. Before we get to that though there is a clear sign that the US dataflow has slowed materially. You can see that in Citibank Economic Surprise Index (CESI) for the US. It hasn’t exactly collapsed the way some other nations have. But a continued underperformance of the data flow could undermine expectations for the USD and that fourth hike this year. We’ll see in the first couple of week’s of July. Either way, good or bad data flow, it will be important for markets and traders.
- The President is itching for a fight it seems. Friday he tweeted about cars saying, “Based on the Tariffs and Trade Barriers long placed on the U.S. & its great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!” Remember this folks. I wrote ages ago this is not about negotiations it is about bringing productive capacity back to the US. To wit I offer the following tweet.
- And I’d also note this tweet from this morning where the President said, “The United States is insisting that all countries that have placed artificial Trade Barriers and Tariffs on goods going into their country, remove those Barriers & Tariffs or be met with more than Reciprocity by the U.S.A. Trade must be fair and no longer a one way street!”
- And this tweet from Luke Gromen is germane to the debate as well. In fact its so core that it is exactly why folks voted Brexit and folks voted Trump. Blame China and other nations all you want but its political and corporate self-interest which has driven us to where we are today.
- Oh, and the FT reports this morning that, “Global equity funds experienced a weekly record outflow of $8.1bn, while global emerging-market equity funds had their own record withdrawal of $6bn for the week ended Wednesday, according to data from EPFR.”
- I do this bit last and I’ve run out of time, so much more to say but I have to hit publish.
- The Australian dollar has outperformed the move in copper with the rally Friday. It was however the almost perfect setup on the 4 hour charts with a run to 0.7450 a simple, garden variety, 38.2% retracement of the last leg lower and hold in the 0.7340 region. Where to now very much depends on what the USD does and on that front it also falls to the Euro which might have some further gains toward 1.1700/30. And as the CFTC positioning data chart below shows the Aussie market is now short AUD to the tune of 45 thousand odd contracts. That’s the biggest short since December 2015.
- That level of shorts means the AUDUSD can run further of course. But rallies are likely to be offered unless the USD falls out of bed.
- SPI traders are back to their irrepressible selves this morning having indicated a 13 point rise in stocks when the ASX200 opens this morning. All I can say is my rhetorical self still doesn’t trust this rally. But while 6135 holds it can run.
- Warwick McKibbon is at it again. The former RBA governor and noted policy hawk on Aussie rates has told the AFR that the RBA should be raising rates. I’m not going to go on about it other than to say it straws some stuff that is patently not correct – like his argument the RBA doesn’t want to raise rates to prick a housing bubble – and then effectively says the RBA should ignore its inflation mandate. Yeah right. He even tries to say Australia is a safe haven in times of global trouble!!!! Anyway, if you’re bored today have a look.
- The CFTC data released Friday shows that Euro bulls finally started to capitulate more fully last week. Of course the data was as at Tuesday’s CoB. But the CFTC table you can see below shows that the net position has swung to a net long US dollar position. So the subsequent retest of 1.15 which failed and resulted in a short squeeze back to where EURUSD sits this morning at 1.1660 almost perfectly fits where the market has positioned itself now.
- I don’t mean that to sound confusing. What I mean is that having finally capitulated and got long the ramp higher in the USD had the power of shorts covering as opposed to longs liquidating into the rally. That’s the first time in many months. And as such the USD selloff could have further legs – especially given Euro’s ability to hold 1.15 and the DXY inability to close above 95.20.
- Dataflow is going to ultimately be important for the USD and whether the rally has stalled or ended. Of course the reality of that is its all about the time frame the trader is playing in. Short term the dollar is struggling, medium term the policy and economic divergence are likely to favour the US economy and the USD. And within those short and medium terms there will be tides, waves, and ripples. It’s all about the time frame you trade.
- Today’s chart isn’t the Euro but USDJPY. That’s because to me it seems like it’s rolling over and may be about to break back down and through 109. What’s intriguing about that is the S&P seems at a tenuous juncture as well given the way the charts look and I’m targeting 2,717 on our futures based CFD. The two outlooks fit neatly together. Here’s USDJPY anyway.
- So for all the talk about serving the customers oil traders clearly voted that OPEC and it’s non-OPEC partners did the least amount possible and have thus served themselves. So with demand expected to increase in the next quarter, and with more supply disruptions already coming down the pipe – so to speak – oil traders hit the buy button. This tweet from one of my favourite Oil market Tweeters explains both the rationale for the increase and also why prices rose in response to the news – OPEC really had no choice it seems and there is no guarantee that the new policy can contain prices much below recent highs on this metric.
- The EW folks say this is about it for oil before a big fall. I’m not sure though the price action of Brent this morning and it's big fall is intriguing. I’ll have a look and discuss in my video this morning.
Have a great day's trading.
Chief Market Strategist
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