It was an interesting night overnight with plenty of meat for traders to get their teeth into.
The inflation data in China yesterday got the markets a little excited because the print of -0.9% mom and fall to just 2.2% year on year is seen as taking the pressure off the Chinese authorities to continuing its tightening policies. We aren’t so sure because it is asset inflation which seems the more poignant in China and the target of the moves over the past year but time will tell. In Europe the data was mixed with British industrial production up 1% last month against expectations of a 0.3% increase. This is good news and helps alleviate fears that Britain was going into a triple dip recession. In Germany however the import and export data was equally interesting for the opposite reason with exports falling 1.5% against expectations of a flat outcome with imports falling 3.8% which speaks of an economy with a spluttering engine.
This data helps explain the differing performance between German stocks and the rest of the major global stock markets in overnight trade. In the US stocks overnight were higher with tech stocks like Microsoft back in favour. The Dow closed at a new record high of 14,673 up 0.41%, the Nasdaq was 0.49% higher and the S&P climbed 0.38% to 1569. In Europe the DAX fell 0.32%, but teh other major markets were higher. The FTSE was up 0.57%, the CAC rose 0.12% and stocks in Madrid and Milan rose 1.10% and 1.26% respectively.
market psychology is interesting and for all the kerfuffle about Cyprus no one seems to care about the problems and growing mess in either Portugal or Slovenia – at least until they do matter. Just worth keeping an eye on in the back ground.
With all the competing news and the positioning that the Yen’s move has precipitated the moves in FX markets have been somewhat exaggerated over the past few days. The Yen looks like it needed a rest making a higher yesterday around 99.66 before falling back into the support zone at 99.58 and it sits around 99.01 at the moment. The Euro likewise managed to rally against the US dollar rallying from a low around 1.30 to a high of 1.3088. GBP also had a fairly robust move higher on the data trading from a low of 1.5247 to 1.5341 and sits at 1.5320 this morning.
The Aussie was also higher trading up to and through the top of the recent range as RBA Board member John Edwards talked a bit too much about his comfort with the current levels (see my earlier post here) but it has been unable to hold above that region for the moment. On the day 1.0360/70 should be support but as you can see in the chart above the set up for one of my favourite types of trades is very close. Whatever the time frame I like what are effectively break out trades which have retraced and found resistance in the what might be termed the “Fibonacci zone”. A move of the Aussie above 1.0513 will see me institute a long looking for a move to 1.0635/45. We’ll see how it goes.
The chart above is interesting – its the daily USDJPY and it gives a slight hint that perhaps a retracement is afoot. Of course the high of 66 and a low more than 100 points below at 58 is a decent old range but USDJPY needs to get below here to open up further downside and brings Yen bulls, if there are any, out of hiding.
Silver was up 2.75% last night out pointing gold which only rose 0.90%. Copper was also up more than 2% and Oil rose around 0.9% also. Corn rallied again up 1.5%, with soybeans catching a tailwind and moving 1.09% higher but wheat fell 0.53%
For all of the above when you put it all together for Currency moves and then add in the moves in Copper, Gold, Silver and Oil last night really looks like a US dollar move more than anything.
Could it be because stocks were higher again and that has often been synonymous with USD weakness over the past few years – yes we think so. Does it make sense – perhaps if the three looks at the labour data last week which put the question of a US recovery on hold are taken into account. Perhaps that is why stocks are higher again – QE is going to persist and Alcoa has signaled that maybe the corporates are still in ok shape. We’re not sure but whatever the reason the driver is and continues to remain Central Bank easy money policy and that is not going away in a hurry.
Chinese trade data today is vitally important while in Australi we have the Westpac Consumer sentiment numbers. Tonight the key release is the FOMC minutes.