US data lifts the dollar and rates, stocks dip a little: Markets Wrap

Greg McKenna Market Analysis 28 Jul 2017

Market Summary

The US dollar is making a comeback and bonds are a little higher this morning after durable goods and trade data boosted the prospects for a solid GDP print for the second quarter when it is released tonight in the United States.

On stock markets London, Frankfurt, and Paris all closed lower while in New York stocks were higher early but the S&P 500 and Nasdaq ended off 0.1% and 0.6% respectively even though the Dow is up 0.4%. Locally SPI traders are a bit nonplussed after yesterday’s failure to hold gains, and the overnight mild falls in offshore markets. Currently the SPI is off 11 points from yesterday afternoon’s close.

Looking at forex markets and the chance that we saw a pessimistic crescendo for the US dollar in the hours after the FOMC decision yesterday seem high. Or at least there is a chance that dollar bears are backing off a little. The Euro, Pound, Aussie, and Kiwi are all down 0.4/0.5% on where they were at 7am Sydney yesterday. The Canadian dollar has lost 0.9% and the Swiss franc 1.4%. But these moves belie where the US dollar was at its weakest point.

In the Aussie dollar’s case at 0.7963 as I write the Aussie dollar is more than 100 points – 1 cent – off yesterday’s highs.

In other markets US 3 month rates are back below the 6 month level which is a good sign for the dollar as well. Gold is holding near $1,260, crude is higher again as prices continue to benefit from the big draw in stockpiles – WTI is sitting at $49.08, up 0.68%. Copper is holding its gains at $2.87.

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

International

DATA: Durable goods orders in the US posted a solid 6.5% increase in June against expectations of a 3% rise and after the -0.1% print for May. It’s a solid headline result even if the ex-transportation came in with a print of just 0.2% against expectations of a 0.4% outturn. US trade data was also out for June showing exports were higher and imports lower. That helped the trade deficit fall 3.7% in the month to $63.9 billion.
Inventories. Not the best way to generate growth if they are involuntary but a superb thing if they represent business’ expectations that growth is on the up. We can never really tell which it is until some point in the future. But the inventory data last night for Jun doubled estimates with a 0.6% increase. That has prompted Citi, among others, to up its Q2 GDP forecast from 2.5% to 2.9%. Such a result would be solid. The Atlanta Fed GDP now indicator is guessing at 2.8%. We’ll see tonight.
Data in Germany was solid as well – consumer confidence hit a 16 year high according to the latest Gfk survey of around 2,000 Germans showed. The print of 10.8 in August is the best reading since October 2001’s print of 11 Reuters reported.
And UK retail sales look to have bounced back according to the CBIwhich reported a monthly retail sales balance of +22 in July from +12 in June. But in another sign of the conflicting signals from the UK economy, Reuters reported that “A survey from supermarket chain Asda WMT.N on Thursday showed almost half of Britons expect their disposable income to fall over the next month”.
And back in the US the Chicago National activity index dipped back to 0.13 from 0.35. That’s not weak per se, it just suggests the US economy is unlikely to surprise to the topside in terms of exceptional growth.

The Fed might have signalled it is on hold for a while when it comes to rate rises but the balance sheet reduction has some folks worried.My view is that as the Fed stops reinvesting it acts as a negative stimulus and is a real tapering. My sense is that all other things equal, such a move will put upward pressure on rates. And that’s something that has the Institute of International Finance worried. Reuters reports this morning that the IIF says the Fed’s balance sheet taper in 2018 will have the same impact as 3 rate hikes on emerging markets.

The US Senate is still working on Obamacare – we are at the skinny bill stage now.

Australia

In the same way that the heavy selling earlier this week failed to break the wedge on a close basis so the buying yesterday couldn’t sustainably break to the topside. That left the market up just 8 points, 0.15%, at 5,785. With 95 gainers and 89 losers of the ASX200 stocks it’s clear there is much action underneath the index level even though the ASX 200 remains constrained by the parameters of the current wedge.
And as highlighted in the intro SPI traders have marked prices lower this morning. Down 11 points it’s in the range where traders on the physical market could ignore th move if they like when trade opens today. But my sense is that the catalysts for a strong rally will be absent today.
Here’s a chart of the physical market showing the wedge.

Australia’s Q2 PPI is out this morning. It’s nothing compared to the CPI result but it is interesting insofar as it speaks to price pressures for business.

Forex

That we may have seen a near term pessimistic crescendo yesterday for the dollar is a real chance if the next week sees a run of better data in the States. At the very least the price action of the last 24 hours suggests US dollar bears are a little exhausted and prices may need to recover a little to reinvigorate them.
So we have Euro down 0.5% to 1.1677, USDCHF up 1.5% to 0.9642, the Aussie dollar off close to a cent from yesterday’s highs at 0.7967, and Sterling off 0.4% to 1.3066. The Canadian dollar has also had a big turnaround with USDCAD up around 140 points from the low of the past 24 hours at 1.2559.
It’s a bullish engulfing candle on the dailies and the move has taken out the previous night’s high at 1.2540ish and the 1.2550 region I was talking about earlier this week. 1.2650/60 is the initial target. But the garden variety 38.2% retracement for USDCAD is 1.2840 on one-time frame and 1.2940 on another. We’ll see. Here’s the CAD chart anyway.

We could see some big moves if I’m right about US data improving. At the very least the CESIUSD is continuing its recovery. It’s at -43.8 now.

Commodities

Crude followed gasoline higher overnight as the residual effects of the bigger than expected draw in inventories lingers. WTI is now up 0.8% to $49.15 and Brent is 1.26% higher at $51.61.
Gold is largely unchanged at $1,260 but it has some significant overhead resistance up near $1,270.
Copper held onto its strength and sits at $2.87 this morning.

Sumber :AXITRADER - Market News & Blog

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