1996 was the year that that terrible song the Macarena was the number one hit around the world but also the last time that the Dow Jones Industrial Average had a 9 day winning streak. Clearly this also tells you something about this market at the moment and while we know that records are made to be broken it seems that like Olympic records rewritten to take account of performance enhancing drugs so the history of this market written in the future might discount these moves which are clearly being achieved under the performance enhancement of the Fed and its helicopter money drop.
But the trend is your friend and for the moment the trend to higher stock prices, even if only marginal new highs, continues.
The key driver overnight was the release of US retail sales which showed that the US consumer is doing better than many feared as a result of the tax hikes. Retail sales rose 1.1% against expectations of a 0.5% increase. Ex- autos and gas the performance was more subdued at +0.4% but this was still better than the 0.2% expected and encouraging in that it suggests for the moment the US economy is doing okay.
The Euro was already under pressure after the morning traders tried to bull it higher driving it up to 1.3064 in early European trade before the sellers came in with gusto driving it back to 1.3000. Then as a result of the positive retail sales report the Euro fell to a low of 1.2922 and sits at 1.2959 this morning down 0.57% over the past 24 hours. Clearly the Euro hit both of the possible trades we mentioned yesterday breaking up and then down through the recent lows and is now back in the 1.2950/70 zone.
First support for the Euro is now the 200 day moving average which comes in at 1.2847 and should it fall through here then it’s on its way to our eventual target of 1.2650ish.
The Euro’s weakness also took the wind out of the Pound’s rally and it retreated from a high of 1.4981 to sit at 1.4925 this morning for a gain of 0.17%. This is the first day on day gain for Sterling for more than a week now as its downtrend gets a little long in the tooth. USDJPY is largely unchanged but the low of 95.43 had us encouraged that the worm had turned for the Yen and by inference the Nikkei we talked about yesterday however the return of strength to the USD saw USDJPY rally back to 96.04 this morning largely unchanged on the day.
Looking at teh Nikkei chart above the level we talked about yesterday as a precursor to a break down is evident and, in terms of MT4 tradeable Nikkei, served as the low over the past 24 hours. A break of this level opens up the 11,860/90 region.
Turning to Australia yesterday’s housing data is a real conundrum. On the one hand we had overall home loan lending falling 1.5% last month against expectations of a flat result but on teh other hand we continue to see reports and releases of House Price Indices that say that house prices here in Australia are on the rise. Indeed the annualised REIA 4th quarter house price rise was something in the order of 15% (slightly dodgy way to look at things here in Australia where we normally use YoY). How can we be getting reportedly solid rises in house prices yet no demand for credit? It suggests that this increase in house prices and possibly the uptick in Westpac Consumer confidence which was also released yesterday and sits at the highest level since December 2010 might be transient.
It is hard to tell but without an increasing demand for credit we are skeptical that the house price rise extrapolation that many of the housing pundits (of which we are happily admit to not be one) are expecting across the rest of the year are going to flow through. Which means that this might be a false dawn for the economy and the NAB’s 50 basis points of cuts expected this year might have a higher probability than the market is now pricing.
Now of course none of this matters for the Aussie Dollar at the moment as it battles the US dollar and is held up by the weakness in other currencies which is feeding back into Aussie buying through the crosses with the Aussie winning against all the Major crosses over the past few days.
As you can see in the chart above the Aussie pulled up at an old trendline yesterday. This trendline happens to be the trendline that goes all the way back to the low in 2009 so if the Aussie can’t get back above it, it might be important to note. Also worth noting is that having not traded or closed above our slow moving average since January 22 the Aussie’s strength has so proved a one day wonder and it has slipped back below it over the past 24 hours.
What this also means for now is that the negative trend continues but it has been a fractious trading period for the Aussie and there is another catalyst today with the release of the vitally important employment figures. FXStreet says that the market is looking for a risk of 9,000 jobs and an increase in unemployment from 5.4% to 5.5%. above 20,000 or below 0 will get things going as will the composition of any change so watch out at 11.30 Sydney time today.
Looking elsewhere European stocks with the exception of the DAX were lower with Milanese stocks under intense pressure down 1.74%. The DAX rose 0.06%, while the FTSE fell 0.44% and the CAC dropped 0.1%.
On commodity markets the bigger than expected build in Crude stocks announced overnight knocked Nymex crude a little lower to $92.43 Bbl. Gold is down 0.2% at $1,588 and Silver is really interesting on the charts as it has been trying to break back above an old trendline for a couple of weeks now to no avail. It fell 0.72% overnight to $28.87 oz. Soybeans fell 0.99% while wheat climbed 0.96% and Corn was largely unchanged .
Australian unemployment data as mentioned above will be key today for Australian markets. Pan-European employment data and jobless claims tonight in the US will be worth watching also.