After the fractured and fractious trade and arguing that occurred over the past 3 weeks is it any wonder that trade overnight was fairly quiet as markets await non-farm payrolls to be released in the US tonight?
Of course not so US markets had an excuse to do nothing as they await the globes single most important data release at 11.30 pm Sydney/Melbourne time tonight. After nights like these there is always some confused commentary and this morning is no different but the reality is that new all-time highs and no further catalyst with a massive data release the following day just means sideways trade. Which is what we saw.
So at the close the Dow was down 0.05%, the Nasdaq rose 0.15% and the S&P 500 was up a tiny 0.03%. It is a pretty big week for Q3 earnings in the US as well which is another reason to watch and wait. Speaking of earning McDonalds hit their numbers but gave a dire outlook for Q4 while Apple rallied. In Europe however the FTSE was 0.47% higher, the Dax virtually unchanged up a tiny 0.02%, the CAC fell 0.21% while stocks in Milan were virtually unchanged down 0.04%. In Madrid stocks managed to rise 0.36%.
On the Sydney Futures Exchange the December contract of the SPI 200 managed an 8 point rally overnight to 5343 bid
On forex markets it was fairly quiet except for the move higher in USDJPY (98.20, +0.51%) after the Japanese export and import data yesterday (+11.5% and +16.5% year on year respectively) left market concerned about the state of the Japanese economy. Realistically though while exports were down the import number speaks potentially to a domestic recovery – but equally a CAD. Elsewhere the Aussie (0.9656) is mid range after an fall yesterday to 0.9640 and a high over the past 24 hours at 0.9679. Euro is hardly changed at 1.3678, the Pound likewise at 1.6146.
On commodity markets Nymex crude is back below $100 Bbl for the first time since July this year and closed this morning at $99.15. traders will be watching the $98.68 level which is the 200 day moving average as a key support level. Gold is barely moved at $1316 oz, silver was up 1.66% at $22.18 oz and copper is at $3.29 lb. The Ags were moving around again with soybeans up 0.85%, wheat down a similar amount and corn up 0.40%.
On the data front Chinese leading and house price indices are out in Asia and then there is a big vacuum until non-farm payrolls tonight. The market is expecting 180,000 and an unemployment rate of 7.3%.
Consolidation or breakout
When we are trading there are periods where markets trend and where markets go sideways. Sometime the consolidation or sideways patterns can last a few hours sometimes months or week’s. At other times a break is met with a surge of buying or selling (depending on the move) which just pushes the price onwards in the direction of the trend.
The question for stocks and particularly the S&P 500 as the global bellwether for risk and other stock markets is where are we now?
Non-farm payrolls tonight is vitally important as is the earnings season that really kicks off this week but equally in a structural sense the fact that the Taper seems to be receding into 2014 is just as important because the flow cash into the market from the Fed has been a critical driver of the rally from 2009.
I’m a macro guy so all the bottom up valuation stuff is not my skill set when it comes to stocks but I picked up a bullish piece on Business Insider this morning quoting a bullish scenario by Jeff Saut from Raymond James. the summary is,
trifecta of bullish tailwinds: solid earnings growth, an accommodating Fed, and a boom in GDP caused by corporate America’s need to invest.
It doesn’t mean it will happen straight away but without the Taper why should stocks fallout of bed?
Gold is finally building a base
Late last year I issued a bearish forecast for gold noting it was likely to fall heavily in the following 6 months. Of course it did and I rode the yellow metal down as it fell below $1200. While there is still a very solid technical case for a further fall if the low gives way as it stands at the moment it is increasingly looking like gold is going to rally in the months ahead.
Clearly this uptrend channel is far from exact – only two touches on the bottom and not exactly perfect at the top either but it is clear that something is afoot with the gold price as it tries to recover from the large multi month fall.
The question I ask myself about this recovery in Gold is what does it tell me about other markets. Certainly there is a growing belief that the Chinese are buying gold to hedge against the USD and its holding of US treasuries (USD crash should equal Gold rally).
Equally I think there is a bit of no taper, enduring QE and maybe even inflation in this price move.
Tying Jeff Saut and Gold together we might just be in fo an enduring rally in stocks and the Aussie Dollar is likely to be dragged along for the ride.
Have a great day and good hunting