Stocks in the US fell again overnight and the S&P is looking pretty wobbly from where we sit – certainly it hasn’t take out that 1520 level we have identified as key for us but tonight looms as the most important weekly close in a very long while after the week we have had in gold and economics. We’ll get to that later but overnight the data in the US once again suggested a second quarter slowdown from the pace and expectation of growth that was apparent just a few short weeks ago.
Initial jobless claims were up only 4,000 to 352,000 but the market took it badly as it did with the weaker than expected Philly Fed survey which fell to 1.3 from 2.0 previously. the punditry had expected a rise to 3 rather than the fall but scarily in terms of the employment picture the sub-index of employment fell sharply from 2.7 to -6.8. Like teh NAB survey here in AUstralia these business survey’s are powerful reads on the economy and we put heavy weight on the sub components. So these data are a worrying sign for the US recovery and by inference the Stock market and risk assets like the Aussie dollar.
Notice I am calling the Aussie a risk asset. I am doing this on purpose because the notion that Australia and the Aussie are a safe haven got airplay again yesterday in an appaling article that ZeroHedge picked up which was a clear advert for someone flogging the ability to invest in Australia. the article claimed that Australia was the new Switzerland where as the reality is that Australia is just the least ugly currency at the moment it is not a safe haven it is a safe harbour at best but more likely given the least ugly analogy it is the Kate Upton of FX land – the latest cover for sports illustrated but only until the next and newer one comes along.
Just like we saw in gold there is a chance at some point, whether it is much lower rates or weaker economic performance or more troubles with miners that at some point many of these recent buyers of the Aussie reverse course. And don’t forget if the Aussie really was a safe haven then it would have gone up this week – not down, Q.E.D!
Anyway to the markets.
The Dow fell 82 points or 0.56% to 14537, teh Nasdaq dropped 1.21% and the S&P 500 fell 10 points to 1542. As you can see in the chart above the 1520 level we identified is actually below the fairly obvious neckline some are calling it. We are saying 1520 because we want to see it trade below the lows of the last 6 or 7 weeks and make a clear break of this line. Having said that though a close below this line on the week tonight will definitively turn the outlook back toward a move under 1500 and then we’ll see.
In Europe the German parliamentary approval of the Cypriot bailout was intially positive but in the end the weaker US data hit stocks and they closed off their highs. FTSE was flat, the DAX fell 0.39% and the CAC was roughly flat as well. Milanese stocks rose 0.63% and Spanish stocks were up 0.13%.
On currency markets the Euro is up at 1.3050 but it looks a bit dodgy on the charts from where we sit – it simply looks like it is going to rollover in the next few days and head back down toward the lows of last week. A breach of the 1.3000/20 zone will signal that this move is under way.
The Aussie likewise had an aborted rally – we went long yesterday afternoon at 1.0315 with a target of 1.0339 but the best it got was 38 bid so we missed our chance and got out in the high 20’s. Which was a good move because the Aussie fell to a low of 1.0266 – not exactly the price action of a safe haven is it. Yesterday we said that we thought it was headed to 1.0250 and it is worth reiterating that this is really a daily note with daily targets and how we trade intraday is different as you can see in the above example. But the key here is that it still looks biased lower and a break of 1.0250 opens the way toward 1.0180.
On commodity markets Crude rallied 1.21%, gold was up 0.71%, Silver was down a little and looks sick at $23.50 oz. Copper regained 0.52% overnight and in the Ags Corn crashed 2.42%, Wheat rose 0.11% and Soybeans were up 0.54%.
The G20 meeting is the highlight for the next few days and we look forward to the communique they will release. We are sure that the conversations between the Japanese and American representatives might be very interesting at the moment.