Markets Morning - USD a little weaker, stocks and bond rates up

Market Analysis /
Greg McKenna / 08 Aug 2018

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

Greg

Market Summary (7.32am Wednesday, August 8)

After the roaring rally on Chinese stocks yesterday, which saw the Shanghai Comp and CSI 300 rise 2.74% and 2.95% respectively, stock markets across the globe had a pretty solid night. Likewise the Chinese Yuan had a better time of it gaining 0.7% in offshore trade and 0.3% in onshore trade against the US dollar.

That shift in tone and sentiment helped buoy risk assets like copper, where the HGc3 price rose 0.73% to 2.7585, and the Aussie dollar which was half a per cent higher at 0.7423.

And of course it’s driven the S&P 500 even closer to it’s record high. At 2,858, up 0.27%,  it’s a handful of points below the high of the day at 2,863 and just 14 points or so from the record high set January 28. I must say it’s a dodgy looking candle on the days trade sitting out there on it’s own.

The Dow finished up 0.5% at 25,628 while the Nasdaq 100 rose just 0.3% to 7,462 even after Tesla’s Musk Tweet induced surge of more than 9% - he said he’s thinking of taking the company private but the company said nothing is final yet. So the question is if a Short screams in a forest does anybody hear? Maybe a securities lawyer or two.

But I digress. The FTSE rose 0.71%, the CAC was 0.81% higher and the DAX rose 0.4%. Here at home SPI traders have come back from small loses an hour or so ago and prices are now flat after the ASX 200 fell 20 points to 6,254. If we see the physical ASX down through 6,230/40 today things could get a little ugly.

Back to forex markets now and the USD came under some pressure overnight. Chinese foreign exchange reserves weren’t the event they might have been given they actually rose – again not a typo - from $3.112 trillion to $3.118 trillion. SO the USD index has again backed off the top of the range and is down 0.2% this morning at 95.17. The Euro is up 0.4% however at 1.1597 while the Pound is largely unchanged at 1.2940 as Brexit worries continue to dominate traders thinking. USDJPY is at 111.37 even though yesterday’s wages growth data – 21 year highs -  does suggest the BoJ will eventually tweak policy properly.   

Of the commodity bloc the Aussie’s 0.5% gain left the CAD and Kiwi behind. USDCAD is actually up 0.4% to 1.3051 while the Kiwi is at 0.6735, up just 0.05%.

Besides the move higher in copper iron ore has been rallying lately and is back testing the trendline from the 2011 highs in US futures terms. Oil was higher too as traders again seemed to focus on the Iranian sanctions. WTI is up just 0.1% at $69.04 while Brent is 1% higher at $74.50. Gold is up a few bucks at $1210. Bitcoin is hanging in at $6889, down 0.5% after the SEC deferred another ETF decision.

US 10’s are a little higher at 2.98% while 2’s are at 2.68% and the curve is around 30 points rounded.

On the day we get the BoJ summary of opinions, bank lending and trade data from Japan. Home loans and Westpac Consumer confidence are out here in Australia while RBA governor Phil Lowe will be speaking at the Annika Foundation lunch at 1.05pm AEST today – more colour on that inflation and unemployment change in his statement yesterday I’d bet.

Chinese trade, exports, and imports for July are also out around the same time Lowe will be speaking. Tonight it’s fairly quite in the US with mortgage applications and then EIA inventory data out for oil and energy markets.

Speaking of which the API data is just out and it has shown a bigger than expected draw of 3.7 million bbls against the 3.3 million expected.

Have a great day.  

Macro Stuff that  everyone and everything – either today or eventually

International

  • Folks do yourself a favour and read these two articles on China. The first by John Garnaut in the Monthly is a long read, doesn’t have anything to do with markets, but is interesting because  it looks at China’s approach to assert influence across the region and the globe. It also looks at Australia’s push back and leadership position for calling out China on this.  The second, via Bloomberg, is more market related because it goes to where President Xi stands right now in terms of his leadership position in China and what options he has for fighting the US on trade.
  • It’s as I’ve been saying on Sky and writing – it is too soon after he made himself President for life that Xi can make a deal which makes him look weak. But he may not have an option it seems. Via Reuters, Oil World say China may have to start buying soybeans again soon because it can’t get enough supply anywhere else to satisfy its needs.   
  • And while I’m talking China, Reuters also reports Germany is considering tightening controls on who can buy strategic firms.
  • The laws of supply and demand, labour, and wages, have not be cast aside entirely in this new age of the gig economy, offshore workers and weak pay rises. That’s the messages from yesterday data on Japanese wages growth which showed cash earnings were up 3.6% in the year to June was a 21 year high. That fed a mom increase in household spending in June of 2.9% and reduced the rate of fall yoy from 3.9% to just 1.2%. You can see why the BoJ has been contemplating changing policy. Q2 GDP Friday will be interesting.
  • The Dallas Fed updated it’s global growth outlook this morning. It said the, “GDP Forecast Unchanged but Risks to Outlook Increase”. And highlighted that the “World (excluding U.S.) real gross domestic product (GDP) growth was 3.4 percent in the first quarter of 2018. The Dallas Fed’s database of global economic indicators forecasts 2018 world real GDP growth at 3.1 percent, 10 basis points lower than the May forecast (Table 1). Advanced economies (excluding U.S.) are expected to grow 2 percent, while emerging countries are expected to expand 4.3 percent”. So not terrible, global trade tensions leave me alert, but not yet overly alarmed.
  • And just quickly on the overnight data. In the US  JOLTS showed that job openings were close to record levels in June, hiring was a little weaker, but the quit rate remained firm suggesting both the labour market remains tight and wages might start to rise soon.  In Germany job openings rose 25,000 in the June quarter and stand at 1.21 million which is pretty solid with employers saying they are finding it hard to find appropriately skilled workers. Also out was German industrial production for June which fell a faster than expected 0.9% but the trade surplus was a little lower with exports flat and imports up 1.2%.   

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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