Risk is back on dragging Aussie higher while gold goes along for the ride

February 21, 2014

I am confused – the market is mad.

It’s only my view of course but the data is deteriorating and it’s not just the weather I reckon. Indeed one of my Colleagues , Steve Perlberg from BI US has a great Goldman Sachs chart that suggests it might be more than that – you can see it here.  So to me it makes no sense that stocks are higher this morning. Indeed the data over the past 24 hours has been, with probably only one exception, negative.

We kicked off with the miss on the HSBC manufacturing PMI which dropped to 48.3 prior to weaker than expected flash PMI’s in France (48.5), Germany (54.7) and EU (53). Also worth noting and placing further pressure on the ECB to do something with regard to quantitative easing was the acceleration in the fall in German PPI to -1.1% yoy from -0.8% as Jan fell 0.1% against the market expectation of a rise in producer prices of 0.2%.

In the US the CPI printed 0.1% for a 1.6% yoy result, jobless claims were roughly as expected at 336,000. The Philly Fed index tanked to -6 from 8.3 expected and down from 9.4 last. But there was one bright spot the US flash Markit manufacturing PMI jumped to 56.7 from 53.7 last and 53 expected.

So I’m asking myself for an explanation then on how with the data above US stocks are up so strongly with the Dow almost 100 points higher up 0.58%, the Nasdaq up 0.71% and the S&P 500 0.62% higher for a gain of 11 points to 1840. Sometimes there is just no explanation perhaps traders reckon it’s really just the weather that is distorting US data.

The market is the market but the market is mad.

In Europe traders were buoyed by the move higher in US stocks and the FTSE rose 0.24%, the CAC was 0.32% higher while Madrid and milan were fairly quite up just 0.08% and 0.07% respectively. In Frankfurt the DAX lost 0.42%.

Locally on the ASX Futures overnight the March SPI 200 contract rallied another 44 points to 5424 a rise of 430 points from the low a couple of weeks back – that is phenomenal.

On global FX markets the risk on meme has helped the Aussie shrug of yesterday’s lows of 0.8933 and it sits back at 0.9010 this morning it what looks like short covering toward 7 am this morning.

Yesterday the Aussie sold off on the back of the weak Chinese data but the risk appetite rise overnight has seen it back at 90 cents, or thereabouts, this morning.

Technically that is a strong signal as this has formed support since the big RBA rally back earlier this month. It certainly brings my short position into question and I will be watching it closely.

The Euro is down a little at 1.3718 with sterling losing a similar amount down 0.13% to 1.6657. GBP came under pressure again last night as Chancellor of the Exchequer George Osborne warned that Britain’s recovery was “not yet secured” but traders aren’t overly concerned for the moment it seems. USDJPY is unchanged on the day at 102.32.

On commodity markets Gold has bounced back strongly to $1323 oz from a low around $1311 yesterday. That is a solid gold rally from yesterday’s lows and as I noted yesterday I am not long now having got out the day before.

So the call that gold was headed lower yesterday is wrong for the moment and as someone who is a gold bull these days it is a bit disappointing that it hasn’t fallen a bit further to wash out the current over cooked price action on the dailies.

So I stay square feeling like a feather duster today after a $12 rally – but I wait for the pullback unless or until this week’s highs get taken out.

Nymex crude is above $100 still at $103.20 which is a huge tax on the global economy. Copper is unchanged at $3.33 lb while the Ags are mixed with corn up 0.55%, wheat down 0.64% and soybeans up 0.30%.

On the data front there is nothing of note out in Australia but the ECB and Euro traders will be watching the Italian CPI while in the UK retail sales are out. In the US existing home sales are out and then of course we have the G20 Finance and Central Banker meeting in Sydney.

Have a great day and good hunting

Greg

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