You really have to wonder who US politicians work for – themselves or the American people, and while it is not for me as an outsider to choose one side or the other to support it is worth wondering out loud what is going on. The key here, as Goldman Sachs boss Lloyd Blankfein told CNN over the weekend is that the moderates in both parties have lost control so it is the extreme elements that have taken control.
That I agree with and as a result I am not trusting on a rational outcome this weekend believe that guarding positions in whatever manner you can is the way to handle the next week or two.
Having said that the adults in the US Senate are trying to stitch up a deal as negotiations seem to have moved onto Harry Reid and Mitch McConnell’s laps. President Obama has been conspicuous by his absence over the weekend although the Whitehouse has released a statement saying that he spoke with the Democrat leader in the House, Nancy Pelosi, and they had agreed to negotiate longer term once the shutdown was ended and the debt ceiling raised. Cheers! With the deadline this Friday ( pseudo deadline anyway) we all remain on tenterhooks.
Looking back to Friday last however, the rally in stocks continued with the Dow up another 111 points to make a two day rally of 444 points. The S&P 500 managed to climb and close above 1700 rising 10 points or 0.62% to 1703. The Nasdaq was 0.83% higher.
Stocks in Europe were stronger as well as the debut of Royal Mail in the UK saw the stock close more than 30% higher and drag other, similar, stocks with it. At the close the FTSE was up 0.88%, the DAX rose 0.45%, the CAC was flat, as was the IBEX in Spain while Milanese stocks rose one quarter of one percent.
As a result the SPI200 contract on the Sydney Futures Exchange (SFE) rose 33 points but the mini-crash in gold and the Chinese data print might put the market under a little pressure. But note that while the Chinese trade surplus was roughly cut in half in September Iron Ore imports hit an all time high.
The SPI, and ASX, has been dragged higher by the S&P which is largely being pushed higher in the hope of a deal being done before the US defaults on its obligations. While the deadline is ostensibly this Friday the reality is that the US Treasury won’t run out of money until the end of the month so there is still an opportunity for the deadlock to extend beyond the end of the week.
There is clear and likely substantial support at the recent high. I’m not bearish per se but I don’t trust this rally.
On forex markets the USD gained ground against the Yen – which will please Nikkei traders today – and it sits around 98.11 after finding support at the 200 day moving average last week. The Euro continues to knock on the door of 1.36 at 1.3564 this morning but can’t seem to hold above it just yet because traders reckon the US politicians will get their act together. Sterling is at 1.5977, looking wobbly and the Aussie dollar at 94.18 is still in the top half of its trading box.
The Aussie too is heading toward significant resistance above 95 cents – lets call it 0.9520. A move above hear would be decisive and get the bulls surging through the china shop. However watch out for a failure as a sign of a double top.
On commodity markets the big news was the fall in gold back to $1269/72 and the fact that the technical outlook now looks like gold is going to do a round trip to this years lows below $1200. While this is initially expected to hold a break would see Gold with a $900 handle on it according to the technicians.Crude fell 0.96% to $101.74 Bbl, Copper closed at $3.27 and our friends the Ags wobbled around as per usual with Corn down 1.14%, Wheat rose 0.98%, and Soybeans fell 1.65%.
Gold looks terrible technically and like it is going to perform a full round trip to the lows of this year.
What you see here is a sell off, a retracement which appears to have failed at the 38.2% level and then the re-emergence of a sell off which now looks somewhat like a potential head and shoulders. The outlook is for gold to return to the bottom of the range and lows for this year and then we’ll see how it looks.
If gold breaks the lows then the Fibonacci extension is for a fall of another $200 and a move below $900 oz.
On the data front it is worth remembering it is Columbus Day in the US so it’s a holiday although stock markets will be open tonight. It also means many lawmakers will be back home with their families.
In Australia we get Home Loan data and from China we’ll see very important inflation data before European Industrial production data is released.
Have a great day and good hunting