Markets relax as tensions ease, USD stronger Aussie and Gold down

August 30, 2013

Recap

  • Two things became clear overnight. First that the UK Prime Minister David Cameron is keen to respond to the Syrian Gas attack with massive force and second that he is under pressure not to do so any time soon and must go back to the Parliament for another vote before it happens. Equally complicating things for those who wish to punish the Assad regime is the fact that as Reuters says on the front page today there is is “No Smoking Gun”.
  • So markets reacted by being a little less scared, a little less volatile and a lot less panicked. At the close US stocks were higher – the Dow rose 0.11%, the Nasdaq rose 0.74% and the S&P eked out a 3 point gain to 1638 off a high of 1646. This is actually a pretty good performance in context of the upgrade US Q2 GDP data which cam out last night showing a lift to 2.5% from below 2 previously and Jobless Claims which at 331,000 seem relatively healthy.
  • In Europe stock markets were similarly buoyant with the FTSE up 0.82%, the DAX up 0.45%, the CAC 0.64% higher while stocks in Madrid and Milan rose 0.40% and 0.97% respectively.
  • After yesterday’s performance the ASX might actually open a little lower if futures are to be believed – and then its the whim of traders for the month’s end.
  • Rates were largely unchanged in the 10 year part of the curve with US 10’s closing at 2.77%, Bunds at 1.86% and Gilts were 2.60%.
  • ON FX Markets the US dollar got its Mojo back again after rallying against the Euro (1.3241) which was off a high of 1.3343 ostensibly after German unemployment rose 7,000 rather than fell 5,000 but that is a hair trigger if true in a country the size and population of German. I favour it was USD taper strength and technical and my Euro short hits it take profit. The Yen (USDJPY, 98.35) was weaker as safe haven flows disappeared and GBP (1.5502) and Aussie (0.9824) came under selling pressure once again.
  • On Commodity market Gold drifted lower and sits at $1406 this morning, Oil dropped back 1.18% to a still elevated $108 Bbl, Silver fell 2.24% but Copper was the big moving as it fell 7 cents to $3.23 Lb. for a loss of 2.06%. Corn was acting up again falling 1.54%.
  • In other news the Septaper sound and still feels like it is a done deal. Last night the Richmond Fed President Jeffrey Lacker said that teh labour market improvement set the scene for the Taper to begin. While Lacker may not be a voting member and while he is a hawk his view is instructive.

On the data front today we get Kiwi building permits, Korean industrial output and services index, Japanese CPI and IP and Australian private sector credit. German retail sales will be fairly important as will UK mortgage data and Brazilain GDP.To round out the week we get personal consumption expenditure and the Chicago PMI in the US.

Capex shows the gulf between Australian growth in the recent past and Australian growth in the future

Yesterday’s Capex data in Australia wasn’t the disaster that many, including me, thought it might be. But as the ANZ wrote in a note to clients yesterday,

The third estimate of Firms’ 2013-14 capital expenditure intentions was softer than we expected and points to a contraction in aggregate business investment over 2013-2014 in average terms.

Importantly the non-mining sector upgrade was weaker than expected and the ANZ said that this meant that,

lower interest rates have yet to gain traction in this sector, and that the rebalancing of growth from the mining to the non-mining sectors is not occurring quickly…

we continue to expect one further rate cut by the RBA this year

Yep, I agree.

The transition from the mining investment boom to self sustaining domestically induced economic momentum is going to be difficult. I continue to maintain that until Australian households pay down more of their debt that they will remain circumspect in their spending and most certainly in their borrowing and as such the velocity of money splashing through the economy is reduced and with it inflation pressure and overall economic growth.

So rates will go down again but crucially as we discussed yesterday the Australian Dollar needs to fall to do much of the heavy lifting by falling into the mid to low 80 cent region – it’s just a matter of time.

Gold falls as tensions ease…or at least the West is finding it hard to justify missile strikes

My experiment with Gold continues and I made 10.55% yesterday on my short from the night before. I only closed it because I had a Police Bank Board meeting to go to and obviously can’t watch posi’s when discussing important Board matters. So I have missed out on $3 of the fall since then as it sits at $1406.75 this morning.

Check out the chart below for the confluence of indicators that suggest that the run to $1433 was a medium term – couple of weeks – top.

To wit on the Dailies,

  • Gold hit the top of the up trend channel
  • The candlestick looks suspiciously like a grave stone doji
  • The day after the grave stone was a down day
  • The daily MACD histogram has topped out

So given that my fast moving average on the 4 hours was breached yesterday at $1411 the key level – and short term trendline support – comes in at $1399/1400 with further support at $1392 and then my target of $1375/80.

I’ll be either selling a rally or a break below $1400 I think – might change but that’s the plan

Have a great day and good hunting

Greg

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