Data out of Germany was truly fabulous overnight. Well at least we thought so because we had been concerned that the usual strong relationship between Chinese growth and German exports might have broken down recently which given the state of the rest of Europe was potentially going to be an issue for the German economy. But the 1.4% rise in exports against and expectation of a rise of just 0.3% and the surge of 3.3% in imports against an expected rise of 1% suggests that Germany can still grow in spite of its moribund neighbours.
This helped the Euro get its mojo back a little after the weak open in Asia yesterday morning when it traded down to 1.2978. As we write this morning Euro is up 0.30% to 1.3036 it is a little below the high of 1.3042 but clearly a better performance than it looked possible 24 hours ago. The problems in Italy continue however with yields rising and the political deadlock showing no signs of healing with Italian 10 year bonds rising another 7 points to 4.66%. As you can see in the chart below from Bloomberg the rally from last year has ended and the recent retest of the trendline suggests Italian yields are headed higher yet.
Speaking of Italy there is a chilling piece we saw on ZeroHedge overnight which really does bother us in a market sense. Beppe Grillo has been, or was prior to the Italian election, dismissed derisively as the comedian but in the video that is attached to the article it is clear that he is more than this and that he has held the views that he has now turned into political power for many years.
Crucially and scarily he is captivating in this piece and you can see why the Italian population flocked to him at the election. He is as good as Billy Graham in his day and dare we say it some of the more nationalistic European predecessors of the last century.
Grillo looks like the real deal and he looks like he is unlikely to compromise. He may also be the template from which similar political players rise in other European nations. It may be long term and structural but Euro is headed much lower – much much lower and has a real chance of dissolution if Grillo and his followers gain traction.
But that is long term rhetoric and we can only trade the market in front of us. So looking at the charts Euro clearly has a floor around 1.2950/60 and a push below here is required for it to head toward our next bearish target of 1.2650. In the interim if it can rally a bit more as the charts suggest and if it can get through 1.3110 it can run a little further toward Fibonacci resistance at 1.3244 which roughly coincides with the old trendline as you can see in the chart below.
In other FX markets the Aussie’s recovery of the low of 1.0200 was very strong and it sits at 1.0266 this morning up 0.61% and slightly below the high of the past 24 hours of 1.0277. The gap lower yesterday morning put the Aussie under pressure but we employed our little “Gary Gap filler” strategy expecting a move back to 1.0236. However the persistence of strength helped change the short term outlook and the crossover of our JimmyR moving average system was synonymous with the sharp spike higher. We didn’t get that bit of the run but the Aussie is starting to look like it has some good buying coming in again on dips and while it is still within the 1.01/1.03 box the chances of a topside break are growing.
The daily chart is very messy and you can see the moves on the 4 hour chart there is some topside momentum – but 1.0300/15 is the key resistance.
In other trade USD/JPY was up again trading to a high of 96.36 and it sits just below there this morning at 96.28 for a rise of 0.34% on the day. Sterling is largely unchanged which is a good performance given that the low of the day was 1.4863 and its sits at 1.4916 this morning. USDCAD was lower by 0.22% at 1.0266.
Looking at stocks at the close, and remembering that the markets close at 7am Sydney time now after the US daylight saving change over the weekend, the Dow was up 50 points or 0.35% to 14,447 and closing on its highs. The Nasdaq and S&P 500 were both equally strong into the close finishing on their highs of 3,253 and 1,556 respectively for gains of 0.27% and 0.31%. Of course this is another new all-time high for the Dow and the S&P 500 is getting very close now needing to only rise 9 points to 1,565 to reach its peak. Worth noting, as Sam Ro did on Business Insider this morning is that,
markets are establishing new highs as earnings growth expectations continue to come down. The technical term for this phenomenon is “multiples expansion” as the price-to-earnings ratio is increasing. When multiples are expanding, stocks are getting more expensive.
Not telling – just saying but it worth noting the VIX was at its lowest level since 2007.
In Europe only the FTSE was higher rising 0.31%. The DAX was largely unchanged off 0.03%, the CAC fell 0.11% and Italy and Spain were hit a little dropping 0.69% and 0.86% respectively. Italy GDP data confirmed the weakness in the economy showing yoy GDP growth in 2012 slightly weaker than expected at -2.8% with the quarterly number printing at -0.9% as expected.
On commodity markets Crude was off 0.13% but much better than the $1 it had been off at one stage. Gold is marking time around $1,579 while Silver fell 0.34% to $28.90 oz. Copper was up 0.34%. Corn rose 1.34%, wheat rose 0.58% and soybeans rose 0.41%. Frozen Orange Juice rose another 1.8% – what a market.
New Zealand House Prices this morning along with some data out of Japan and then our favourite indicator for the Australian economy the NAB Business Survey. Tonight there is a raft of Price data out of Europe, Manufacturing in the UK and Redbook sales in the US