Quiet night, the calm before the storm over the next 48 hours?

February 6, 2014

Don’t get sucked into thinking nothing is happening because nothing happened last  night – well basically anyway.

Sure it was an extremely boring night but in reality this could be the calm before the next storm, the eye of the hurricane, the moment of slow motion clarity before the car crash. Because while it’s not much of a recovery we are seeing in markets at the moment this is entirely normal after a plunge  the likes of which we have seen in the past week.

Indeed the price action of the last 2 days just tells us that traders are worried about entering before the results of the US non-farm payrolls are out tomorrow night at 12.30 pm AEDT.

To that end the ADP employment report, which printed 175,000 against 180,000 expected disappointed mildly but it was down sharply from last months 227,000 and traders and investors are clearly worried that last months tiny 74,000 rise in non-farms may not be the aberration that it was thought to be. Elsewhere on the data front Markit services PMI’s were lower in most of Europe and EU retail sales fell 1.6% in December against the expected fall of 0.5%. ISM services in the US was 54, slightly more than expected.

So at the close in what can only be characterised as “choppy trade” the Dow is down 5 or 0.03% to 15,540, the Nasdaq and S&P 500 are lower however down 0.48% and 0.18% respectively. The S&P sits at 1,752 this morning.

In Europe traders are waiting to see if ECB boss Mario Draghi will give the markets a little sugar hit in the form of a rate cut or hints of QE tonight and stocks were down early but recovered as US markets rose off the lows. At the close the FTSE was up 0.14%, the DAX rose 0.13%, the CAC was unchanged while stocks in Madrid and Milan were 0.21% and 0.26% higher.

Closer to home the SPI 200 contract traded briefly under 5000 yesterday afternoon when Asian markets were swooning but its 12 points higher overnight to 5031 bid.

So, can the SPI bounce? That is kind of a silly question because its already up 35 points off the low below 5000 yesterday but when i look at  my charts I’m conflicted because it looks like it is headed toward 4920/50 eventually but we might get a bounce first.

I’d rather be a seller on rally than trying to pick bottom but if you are that way inclined there could be a short term trade for you.

On FX markets the Aussie dollar was under pressure along with the ASX yesterday afternoon trading down to 0.8870 but it recovered it poise and sits at 0.8910 this morning.

Watch retail sales for the Aussie today

Retail sales have been a bright spot for the Australian economy over the past few months as consumers are clearly opening their pocket books and spending. It how monetary policy is supposed to work and it looks like it is.

But we get the next update today of December retail sales with the market expecting a rise of 0.4% seasonally adjusted. That’s actually a bit lower than the 3 month average and the strong growth in the NAB online index yesterday might be a guide to another good result – unless of course all the growth was online??????

Anyway looking at the 4 hour chart of the Aussie it is clear it is time to either break higher or lower – lets trade with the break.

My sense – and I am not talking my book, maybe anyway, is lower but a break of the fast ma and yesterday’s low at 0.8870 is needed to kick on.

Euro and Sterling haven’t moved much sitting at 1.3532 and 1.6310 respectively. USDJPY recovered from yesterdays low like the Aussie and sits at 101.38 this morning.

Commodities are moving around as well and waiting to see where risk goes, on or off. Crude is largely unchanged at $97.27 even though the stock build was only about 20% of what the market was forecasting. Gold is up $5 to $1258.80 while copper is unchanged at $3.22 lb. The ags recovery continued with Corn up 0.4%, Wheat 0.51% higher while soybeans rose 0.17%.

On the data front retail sales and trade are out at 11.30 AEDT today in Australia before German factory orders tonight, and the ECB and BoE policy decisions. In the US the Challenger Job cuts data will be watched closely for a lead on tomorrow nights Non farm payrolls.

Have a great day and Good Hunting

Greg

Don’t forget you can follow me on Twitter @gregorymckenna

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