Stocks in the US managed to finish higher again on Friday night for new closing highs and a very strong week, this allowed the DAX and the FTSE to also finish in the black but the periphery, which these days I reckon includes France were lower and the USD got a little of its Mojo back against the Majors and positively smashed the Australian dollar lower after a disasterous round of comments from the Chinese Finance Minister knocked it out of the park.
Data today from China will be very important as will the around 70 earnings reports in the US this week.
Aussie takes it in the neck
I tried to buy the Aussie for the first time in ages on Friday, of course every time I close out a short I am buying Aussie but on this instance I went long first at 0.9245 ahead of a nice little hourly uptrend line which you can see in the 4 hour line graph below I used in my Free Weekly Newsletter on Saturday (sign up here).
So I went long and then the Aussie ran up 0.9277, back into the sixties and then briefly into the eighties before coming back down into the sixties where I exited because I didn’t like the price action and thought there was a retest of the line, maybe break, in the offing (based on my trading protocols). And so it was that the Aussie broke the line aided and abetted by a renewed focus on China and its growth rate.
I spent a lot of time talking about China and slowing growth and a repointing of growth under the new regime led by Xi Jinping. A repointing that is all about breaking the recent paradigm of growth for growth’s sake and a refocus on something that more equal across the Chinese population while at the same time being more productive. Of course this also means slower growth particularly in the second half which was confirmed by the Chinese Finance Minister Lou Jiwei as reported by Xinhau on Friday. He said that 7% should not be seen as the bottom line and suggested that second half growth could be well below that.
This little break of an hourly line and comments from the Chinese was enough to knock the Aussie for six across the board and it made a new low for this run below 90 cents at 0.8997 before rebounding a little to close around 0.9050 and it sits this morning at 0.9075.
Critical today is Chinese GDP which the market is expecting to print 7.5% yoy – but if the run of weak data continues as it has over the past couple of months then the Aussie is very exposed to more selling even though shorts are still very high in the speculative community.
On Friday I said that the Aussie had to break 0.9330 or I’d just trade the Box, thaat remains the case but the focus is now the downside and my long held target of 0.8916. Only if that breaks will I get super bearish short term.
Longer term I believe the Aussie is going to 81 cents.
On other FX markets the USD was a little stronger but Euro, GBP and Yen came back from early weakness. The best short term trade of the 3 today probably is a fall in USDJPY below 99 which would break a little hourly line.
Stocks change focus to earnings
Expectations are more important than reality in markets. It is the Keynesian beauty parade in all its real time glory so while I worry that earnings are going to be weak and have weakened a lot over the past 6 months that doesn’t matter because so much earnings guidance has been given and thus all day traders and CNBC and the like care about is the “Beat” – did the stock reporting beat expectations or not.
If the earnings results we are going to see this week had come as a shock the market would have fallen off a cliff but they won’t come as a shock and some may even beat expectations and so their stock price might rise – it is the dance of expectation management corporate managers across the world do each quarter, half and full year. and it is the most important dance in markets – manage expectations and you manage your share price – fail to manage expectations and your board will manage you out.
So with 70 earnings results out this week there is a strong chance that the rally of last week is further built on but a break and hold above 1686 is needed to kick the S&P 500 on further – I won’t be playing though, not from the long side.
I am not going to fall into the trap of being eternally bearish on stocks I am just not going to participate in move higher at an index level based on fundamental grounds. But individually for stock pickers this US economic recovery is a boon for individual stocks and sectors like the banks as we saw Friday.
Anyway at the close the Dow was up 0.02% at 15464 but I’m guessing that Boeing might bounce back tonight after it was confirmed that the Ethiopian Airlines fire was not caused by the battery’s which recently plagued the Dreamliner. The performance of the Banks helped the S&P push to a new closing high at 1680 up 0.30% and the Nasdaq closed at 3600 +0.61%.
But having said I don’t want to fall into the bear case can I bring your eye back to Europe and the problems of Portugal. As you can see in this chart the 10 year bond rose sharply last week and indeed rose 61 basis points on Friday night to 7.51%.
Europe remains a basket case with Chancellor Merkel more interested in spying and internet legislation than actually and actively moving after all these years to actually try to heal the European Sovereign Debt and Growth crisis. In the last few week’s we have seen a continuation in the economic deterioration of Europe’s dominant economy while political and economic problems continue across the EU.
The pot is on a simmer not the boil but it is worth keeping a weather eye on.
At the close the FTSE was marginally higher at +0.02%, the DAX rallied 0.66% but the CAC, FTSE MIB in Milan and IBEX 35 in Madrid were all lower dropping 0.36%, 1.57% and 2.31% respectively.
On commodity markets, gold looks like the best bet for a continued rally if it can get above $1303 which I see as huge resistance but if it breaks, well then off we go. Crude was up 1% again to $106.25, Copper fell 0.41% to $3.17 lb while Corn, Wheat and Soybeans all fell down 2.13%, 0.55% and 2.37% respectively.
Chinese GDP and retail sales or US retail sales? You take your pick on what is the most important today but they are both market moving potentially and they make Australia motor vehicle sales pale into insignificance. Empire State manufacturing is also out in the US.