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 (7.59am Friday August 3)
I’ll get it out of the way early, then I don’t have to talk about it.
Apple hit the $1 trillion capitalisation mark overnight becoming the first company to do so and settling bets all over the world on whether it wood be Jobs or Bezos who created the first company to hit the mark.
Of course it’s nothing to do with Bezos, Jobs, or the fantastic job Tim Cook has done – or not entirely to do with I should say. If not for QE all over the globe it’s a fair bet prices of this and other companies would be lower. We’ll know more in time if the Fed can genuinely pursue its goal to unwind the balance sheet and if other central banks eventually follow them.
Anyway, enough editorial.
Along with Apple social media stocks like Facebook, Snap, and Twitter all had good nights amid a decent 1.36% rally in the Nasdaq 100 which took it to 7,376. The Dow was marginally in the red at 25,326 and the S&P 500 was up half a percent to 2,827 recovering European and Asian weakness after the Chinese Ministry of Finance talked tough yesterday about the trade war.
But you need to abstract tech to get a real sense of what’s going on right now.
BHP, Rio, Glencore, Anglo American, and Vale – among others – got belted last night. Copper last another half a percent to $2.72%. Commodity currencies were lower too amid more industrial metals weakness. Folks, there are genuine concerns about this trade war underlying markets which makes any genuine retaliation from China, rather than the current rhetorical approach, an issue for markets. Even a tech bounce won’t fix that.
Anyway, Chinese bellicose rhetoric yesterday saw Asian stocks lower, and then disappointing corporate results in Germany and some political disquiet in Italy added to the tone. The DAX was 1.5% lower, the FTSEMIB dipped 1.73% while the CAC lost 0.7% and the FTSE was 1% lower after the Bank of England’s dovish rate hike.
They’ll likely have some positive catch up when they open this afternoon while the SPI traders have already added 19 points from where prices were when the ASX200 closed yesterday at 6,240 – down 35.
To currencies now and the USD was stronger against everything but the Yen overnight. Euro is back under 1.16 at 1.1584 for a loss of 0.64%, the Yen is at 111.64 roughly flat, and the Pound is down 0.82% after failing to break downtrend resistance and the BoE governor Carney signalled the most gradual of rate hiking cycles – around one per year. GBPUSD is at 1.3017, down 0.82%.
The Aussie and Kiwi are under pressure as well. The Euro fall has dragged both lower and AUDUSD is at 0.7363 for a loss of 0.55% while NZDUSD is down 0.74% to 0.6738. The CAD is only down 0.14% after oil bounced back from the previous night’s fall. USDCAD is at 1.3021.
Gold is making a new low for this run and at risk of a big fall below $1200 now – it’s at 1207. Oil was higher though as traders decided to focus on some industry data showing continued tightness in Cushing and another inventory draw there. So WTI is up 1.94% at $68.97 while Brent rallied 1.35% to $73.37. What’s important here for both is that the rallies were even stronger from the lows of overnight trade. Bitcoin is up 1.25% at $7574.
Japanese, German, and US 10 year rates were a little – just a smidge – lower overnight. US 10’s are are at 2.985%, the 2’s are at 2.66%, and the curve is at 32 points.
On the day here in Australia we get the very important retail sales reports. The market is expecting 0.3% for the month of June and 0.8% in quarterly terms. It’s a big one in terms of where the economy is right now and could move the market.
Offshore its services/non-manufacturing PMI day. The Caixin print in China will be worth a look as will Japan, Asia, and of course everywhere else. Services need to hold up to balance out the dip we are seeing in manufacturing at the moment. But nothing really matters other than the release of July’s US non-farm payrolls. Economists are forecasting 190,000 jobs, 3.9% unemployment, and earnings to rise 0.3%.
Have a great day.
Macro Stuff that affects everyone and everything – either today or eventually
Markets seem to have reacted positively to the Apple Trillion Dollar hit and Wilbur Ross saying the tariffs are no big deal really.
But it’s pretty clear the Chinese don’t think so and the US is not about to back off. I’ll get to Ross’ characterisation of what the Administration is doing in a sec. But first its worth noting the market is clearly making the bet that the Chinese will fold, that Ross and his boss will win, otherwise why would we consistently see US traders bring the S&P futures back from Asian and European weakness? Again this morning there is a huge difference between London’s 1.0% loss and the S&P’s 0.5% gain. Yes, Apple did help. And yes the US economy has momentum which is driving an overall solid performance this earnings season. But the European falls and US rallies in S&P futures tells us traders are siding with Trump.
Back to Ross now, and I saw an interview he had with Fox the night before float past on FXMacro’s Twitter feed yesterday morning. In that interview Ross said, “We have to make it more painful for the Chinese to continue these practices than to modify them”. He’s said this before I seem to recall. And he’s also reiterated what President Trump told CNBC a few weeks back, that now is a good time to have this battle because of the strength of the US economy.
Now, even if you hate the tariff idea, it is fair to say that the Administration is prosecuting a decent argument against the Chinese. They have “benefitted” if I can put if politely from the global trade system and Western company desires to gain access to their market. So when you hear the Ministry of Commerce say “China is fully prepared and will have to retaliate to defend the nation's dignity and the interests of the people, defend free trade and the multilateral system, and defend the common interests of all countries” it’s hard not to laugh a little. But it’s also clear this battle is not over. Especially when MofCom also said, “the carrot and stick tactic won't work”.
So the risks of escalation remain high. But the market still thinks this is just a negotiating tactic. I’ll respect that unless or until 2,790 breaks on the S&P500. It came close last night but held. Here’s our futures based CFD chart – level has to break first. If it doesn’t this is moot.
I’m running out of time, but read this by Ambrose Evans Pritchard…he’s right. “China's currency slide risks a horrible misunderstanding with Trump”.
Have a great day's trading.
Chief Market Strategist
The information provided here has been produced by third parties and does not reflect the opinion of AxiTrader. AxiTrader has reproduced the information without alteration or verification and does not represent that this material is accurate, current, or complete and it should not be relied upon as such. The Information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any particular trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted
Soaring US yields trigger the wrecking ball effect as yields become a source of volatility for risk, rather than a source of support