The S&P made a new high but Euro continues its decline before ECB meeting

September 1, 2014

No more mucking around, no excuses for low volatility because everyone is on holidays and no ignoring the reality of a moribund Eurozone and a solidly recovering USA.

At least that is what should happen and if it doesn’t that becomes as powerful a message as if it does.

Key now is that with the US out today for the Labor Day weekend the end to the summer holidays in the Northern Hemisphere is here. So traders return to their desks and the focus into year-end begins.

Of course while geo-politics was largely ignored over the summer break there should now be a lot of focus will be on the Ukrainian escalation, with Putin doing his best belligerent bear impression over the weekend. Watch gold which seems unable to react positively to anything.

More importantly though is the Fed and the end of the QE and, given the data recently – particularly Friday night – how soon rates will start rising in the US.

Looking back to Friday and the data highlights the point about the divergent US and EU economic performance.

While the US economy may not be back at boom-time levels, the Q2 print of 4.2% is no fluke. Friday saw the release of The University of Michigan’s final consumer confidence survey for August come in at 82.5, topping expectations for a reading of 80.0. Current conditions came in at their highest levels since 2007 – phenomenal.

Also out was the ISM/Chicago’s PMI for August which printed a massive spike to 64.3, well north of the 56.5 the pundits had been expecting. Personal income and spending disappointed but the order of magnitude was small enough to not trouble those who think the economy is on the mend.

In Europe, the German retail sales print of 0.7% for July was less than half the 1.5% expected, which has knocked the year-on-year rate from 1% previously to -1.4% in July – a truly bad outcome. The EU inflation, however, printed 0.3% as expected with the annual rate coming in at 0.9%.

So at the close, the Dow rose 10 points to 17,090, the Nasdaq was 22 points higher at 4,580 and the S&P 500 made a new all-time closing high at 2,003.26, up 6.5 points.

It all added up to a marginally better stock performance in the UK and the Continent. The FTSE rose 0.21% to 6,820, the DAX was up just 0.08% to 9,470, while the CAC rose 0.34% to 4,381. In Milan stocks rose 0.54% but in Spain, stocks rose just 0.06%.

The resistance remains clear in the DAX.

The wash-up was that on the ASX the September SPI 200 futures fell 2 points to 5,612. There are a lot of catalysts for trade this week in Australia and around the world after a quiet few weeks and traders will continue to watch 5,580 as a key support.

On Currency markets, the US data helped knock the euro lower along with comments from ECB member Coeure which seemed to imply the easing is coming this week. It closed the week at 1.3130 and it would seem is soon headed below 1.30.

Lower levels beckon.

Sterling was lower at 1.6568 also and the Aussie, although still relatively strong, fell back to where it was before the solid Capex data last week. It sits at 0.9230 this morning. USDJPY sits atop 104 once again.

On Commodity markets, Iron ore for September rose 18 cents to $87.57 while Newcastle Coal for the same month fell 75 cents to $68.70 – its lowest level since July 25. Crude was a bit higher, up 1.5% to $95.84 a barrel, Copper was unchanged at $3.13 a pound, but Gold benefited a tiny bit from the tension between Ukraine and Russia and sits at $1,288 with Silver at $19.41 an ounce. On the Ags, Wheat and Corn fell 1.43% and 1.57% while Soybeans finished up 0.22%.

It’s a US holiday but locally on the data front the AiG Performance of Manufacturing is out this morning along with the TD Securities monthly inflation data. Gross Operating profits will feed into Q2 GDP to be released on Wednesday. HSMC China PMI will be out today as well.

Tonight in Germany, the GDP is very important and there is a raft of Markit and HSBC PMIs out around the world.

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