Vantage FX | New high in stocks, should be a big weekly close for S&P and the Aussie Dollar | 19 July 2013

July 19, 2013

Recap

The Fed Chairman didn’t add anything particularly fresh overnight to whether the bull or bear case for stocks and the US dollar so the stocks in Europe and the US were higher with the S&P 500 hitting a new all-time high intra-day high of 1693 before pulling back a little later in the day. Data out of the States was pretty good with a fall in jobless claims from 360,000 last week to 334,000 and a big and unexpected spike in the Philly Fed index from 12.5 last month to 19.8 in Jul for a 12 point gain on market expectations. Stocks in Europe were also higher.

On Currency markets the US dollar was marginally higher against the Euro and GBP but knocked the recent Aussie strength on its head and hit the Yen out of the park in the run up to this weekend’s Upper House Japanese election with USDJPY back strongly above 100 this morning.

Bonds in Europe fell but were a little higher in the US with the 10 year up 5 points to 2.54% while on commodity markets Nymex crude continues to close the gap on its Brent counterpart and now sits above $108 Bbl in what might be a big hand break for growth down the road.   Gold is up about 10 buck on yesterday morning at $1284 this morning.

Aussie Dollar gets hit again

Last Friday night was a horrible week’s end for the Australian Dollar with trade under 90 cents briefly before it roared higher to the top of the box it is in at the moment  making a high of 0.9290 earlier in the week and it sits mid rangeish now around 0.9160/70. Obviously US dollar moves have been important but so too was the squeeze that accompanied the RBA minutes on Tuesday.

However two things have happened in the past day which high just how vulnerable Australia and the Aussie Dollar remain.

The first was the NAB quarterly survey which has a bigger survey audience than the monthly one and showed that employment conditions continue to weaken and that employers may be needing to cut workers soon, that business conditions and confidence fell along with trading and profitability. The NAB said that there was “Little sign yet that lower interest rates and AUD are helping” which I believe continues to build the case for further monetary easing in the months ahead.

Equally interesting and important to the Australian economy and the Aussie were comments from the Chinese Finance Minster I picked up on Patrick Chavonec’s Twitter feed this morning which said that there won’t be any fresh stimulus this year. This is important because also part of the Aussie rally earlier this week was Chinese Q2 data that was not as bad as feared and “clarification” about what the targeted rate of growth is going to be this year. My sense, as I talked about in last Saturday’s weekly is that the Senior Chinese leadership team knows what and why it is allowing a slowdown to occur – the comments above are consistent with this thesis.

As you can see in the chart below the Aussie is both in its box but also resting on a little 4 hour uptrend – just like last Friday I might add.

Support is at 0.9142 today.

In other FX pairs the Euro remains becalmed realistically between the 1.3050 and 1.3130 short term range with support at 1.2980 and resistance in the 1.3175/1.3210 region. GBP looks interesting against the US dollar and a push through 1.3270 opens up a 60 point run to major short term resistance at 1.5330.

The USDJPY is also on the march again having flirted with a downside break it has now run into resistance again overnight. This tells me for all the ex-poste rhetoric about the Japanese election and the increased chances of a renewed Abe mandate for aggressive change coming next week the technical and short term traders have the USDJPY in their grasp and are just pushing it around.

While I think the USD is going to push Aussie and Euro lower I still reckon that USDJPY is going to be a big old range for a while. A 25% depreciation is putting a lot of pressure on Japan’s neighbours particularly China and Korea and any further weakening would be resisted by global policy makers I reckon.

Bernanke’s Baby, new stock market highs

Ben Bernanke must be so proud, not!

After reiterating that part of the aim of the taper talk is to stop new bubbles the Fed Chairman’s stress on the important nuances of the taper versus higher interest rates has birthed new all time intra-day  interest highs for both the S&P 500 and the Dow. That is not to say I think he has done the wrong thing in making this important distinction just that it is probably frustrating him and his colleagues at the Fed that with stocks at or near all time highs the risks of an adverse reaction tapering when it begins are also much higher.

At the close the Dow was 0.51% higher at 15,549, the S&P 500 was up 0.48% at 1689 but the Nasdaq lagged as specific components such as Intel stopping it from matching the gains of its counterparts.

In Europe it was a sea of green with the FTSE up 0.94%, the DAX up 1%, CAC up 1.45%, Milanese stocks rose 2.29% while those in Madrid were up 1.85%. The Portuguese opposition’s no confidence motion failed which is a good thing but concerns remain about the southern European states and where they are at with regard to growth and debt – on the back burner rather than off the stove so we are keeping an eye on things closely.

Just on the technicals for the S&P and by extension stocks around the globe. Last night’s high was a fresh high but as I wrote earlier in the week I need to see a weekly close through the top  of the recent high in order to turn the outlook more bullish.

Data

A quiet end to the week with nothing in the US, Chinese leading index in Asia and German import and producer price indices.

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