Vantage FX | In a bull market be bullish. Higher highs in Aussie and S&P 500 | 11 April 2013

April 11, 2013

Well there you go – I got it wrong.

Not for a moment did I expect the S&P to break up through the trend line that has been constraining it for a while now. But it did and it made a new all time high overnight at 1589 on the back of a strong surge in European stock markets after news that Portugal was going to receive a debt repayment extension (cross that one off the worry list). Ireland is also going to get an extension apparently which is only fair given that the Irish have done exactly as asked of them.

Bloomberg reported the Troika and EFSF,

would advocate to extend the maximum average maturity by seven years as it appears to be the best compromise accommodating the constraints and preferences of debtors and creditors

Equally positive, although I confess to having missed the nuance originally, was the Chinese trade data which showed Exports up 10% YoY and Imports up 14.1% YoY. I was focused on the slowdown in Exports from above 20% but market players saw 10% growth as still very strong, which it is, and also liked what they saw in the imports data.

So at the close Europe fairly soared with the FTSE up 1.17%, the DAX up 2.27% and the CAC up 2.00%. Unsurprisingly Milan and Madrid had the turbo charger on and they rallied 3.19% and 3.35% respectively.

In the US somehow the FOMC minutes were leaked and had to be released early but even though they showed that some members are buoyed by the pick up in the employment market and think easing will be scaled down as soon as this year the market shrugged it off. Indeed the key here seems to be the perfect world of easy money and improved earnings. I picked up the following from Business Insider this morning.

Of the 22 S&P 500 companies that have already reported, 73% beat their earnings expectations by an average of 1.7%,” wrote UBS’s Jonathan Golub in a note to clients yesterday. “Upside is entirely due to margins not revenues. We expect these trends to continue.

This is really good news for the market if it continues and those of us expecting trouble ahead might have to rethink – but on this I would suggest you familiarise yourself with a great but chillingly scary article on ZeroHedge yesterday which suggest some put cover might still be a reasonable thing to have on a 6 month basis.

Anyway at the close the Dow is up 0.88%, the S&P has rallied 19 points to close at  1588 for a gain of 1.24%. The Nasdaq is also up rising 1.83%.

The Chinese data was the reason the Aussie dollar roared up from 1.0480/83 just before 12pm when the data was released pushing above 1.05 very quickly. When you think about it even though the Aussie is way above fair value (you know I don’t like that concept) in a world where its correlation to commodities is below 0.25 you have to say that it is interest rates and economic stability with a little bit of China glide path thrown in that is driving the Aussie higher once more. If stocks are going to keep rallying then the Aussie probably is too.

We mentioned yesterday that the Aussie was set up for one of our favourite technical trades and we were triggered on our buy stop at 1.0513 yesterday and we are now targeting a move toward 1.0635/40 where we will reassess. This trade was based on a 4 hour chart so had 2*4 hour ATR stop. Some believe that the break was important and offers a measure move to 1.22 – I’m not so sure of that but the reality is that if we have a benign monetary policy environment globally and a relatively tight one here in Australia and a central bank that is alert but not alarmed at the Aussie’s strength and unwilling or unable to do anything about it then why sell Aussie.

We’re not getting too bullish yet but the ducks ARE lining up for the Aussie once more – watch the employment data today though. Market, according to FX Street is expecting no change in unemployment at 5.4% but a fall of 50,000 in employment to unwind last months remarkable and unbelievable rise of 71,500. The ABC is saying however economists are only expecting a fall of 7,500 so this could be an interesting number at 11.30 Sydney time today.

Speaking of ducks BoJ Governor Kuroda was on the hustings again over the past 24 hours and depending on which translation you got he either said he’d done what he could or said he would do what is needed to get inflation to 2%. We’ll take the second translation because we doubt very much he is satisfied after just one BoJ meeting. It seems the market took that interpretation as well given that USDJPY made fresh highs for this run at 99.87 overnight. That’s another 100 point range for USDJPY which had a low of 98.88 yesterday for a gain of 0.78%.

Euro somehow though couldn’t kick on which is a bit weird given the stock performance and the good news out of Europe – but perhaps the explanation is in the Fed minutes and the chart below where you can see the convergence of a couple of Fibonacci levels near yesterday and the day before’s high. The high of 1.3121 is now seen a a key hurdle to the next leg of the Euro’s rally if it is coming. A break back down through 1.30 would negate the outlook.

On commodity markets the gold sell off recommenced with then yellow metal falling 1.79% to $1557 oz and is once again retesting the bottom of the trendline as you can see in the chart above. Silver was lower as well falling 0.81% to $27.64 oz. Crude was up slightly for the third day in a row up 0.36% to $94.54 Bbl. Copper fell 0.7% and it was interesting to see an article in the FT saying that huge increases in supply are coming down the line for copper. Wheat fell again dropping 1.69% with soybeans slightly lower down 0.21% while corn rallied again up 0.66%.

Data

It’s about jobs today – Employment data in Australia and then jobless claims in the US tonight. Interestingly after those Fed minutes a weak Jobless claims may not hurt stocks because that would push back the withdrawal of stimulus.

Earlier though we see NZ PMI before tonight getting European CPI data.

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