When you have had a move like we had Friday there is usually a time for reflection by market players. This is particularly so when the short term technicals are so over cooked as they were for many markets and particularly when the rally occurred on the last trading day of the quarter as was also the case Friday. Certainly markets did the right thing in rewarding the European leaders for taking steps in the right direction toward a long term sustainable future for the Euro and a stemming of the crisis. But the reality of the economic outlook could not be avoided over the past 24 hours with manufacturing indicators around the world painting a realistic picture of the slow growth future for the globe that we are oft to talk about in this space.
Still as you’ll see below I reckon that the markets held in really well on a night where they could have reversed hard the gains of last week.
Certainly on the data front the day started off a little better with the Tankan in Japan printing on the topside of expectations but the data from China, although also besting expectations, showed a further deterioration from the month before. The Chinese official PMI fell close to the 50 line which is the division between expansion and contraction printing just 50.2. Equally the fall in the HSBC Chinese PMI number release, which seems to consistently undershoot the official number, fell to 48.2 in May. So concerns about a Chinese recovery were doing the rounds in our day yesterday dampening economic expectations.
Unfortunately though there was no signs of improvement in European manufacturing data with the Eurozone PMI data looking weak at 45.1 unchanged from May. In Germany the PMI released was 45 below May’s 45.2. Italian, French and Spanish PMI data was also universally weak. UK PMI was an improvement from last months 45.9 coming in at 48.6 but still wrong side of the 50 line.
And then we had the US ISM data which came in at 49.7 which was well below the previous month’s outcome of 53.5 and expectations of 52. New orders collapsed in a manner not seen since 9/11 and the 1970’s. So the internals of this number (like the Chinese data) were not good.
Why am I spending so much time talking about the economic data on a night when the market ignored it and Europe’s bourses were higher and the US equity market clawed back toward square? The answer is that ultimately these data are going to force the hand of the globe’s central bankers towards more monetary accommodation – an ECB cut this week and QE3 eventually in the US – particularly if we get a weak non-farm payrolls on Friday.
So, to the equity markets. Another good night in Europe for equity players with the DAX up 1.24% the CAC up 1.36% the FTSE up 1.25%. In the US a mini rally toward the close of the day saw the earlier losses erased with equities scambling back toward square/in the black. The Dow finished down 0.07% at 12,871, the S&P rose 0.25% to 1,365 and the NASDAQ rose 0.55% to 2,951. Our own ASX 200 futures index is up 0.3% in SPI trading.
On commodity markets crude slipped back after the euphoria 1.2%, copper was around 0.75% lower but the overall CRB index was around square. I would characterise this price action as entirely normal after such a strong rally but actually pretty solid in the face of the data.
In currency markets, the Australian dollar did very well and there were emerging signs in Asian trade of buyers coming back into the market as it held up relative well near the highs. The EUR was knocked by weak data while Sterling like the Aussie was well supported. It seems like all the action is in the crosses as traders and investors seek to work out where the next play is.
Just briefly in other news:.
- Glaxo Smith Kline has agreed to pay a fine of $3 bln related to “misconduct” arising from the marketing of some drugs .
- I guess we should have known, it’s not as though they haven’t done it before, but the Finns and the Dutch have said NO overnight to the ESM buying bonds of nations in the Eurozone. Something to watch.
- Keep July 10th on your radar for the German version of the Supreme Court’s response to a petition that Euro bailout provisions are unconstitutional and should be injuncted.
- Cyprus says the rules that are proposed from the EU with regard to its fiscal situation are “important” – Yep!
- Airbus is planning to assemble jets in the US – this has to be a sign that the USD is bottoming.
- Greece will be back in the headlines Thursday with the “Troika” coming for a visit.
Lets have a look at some of the markets we follow.
Crude: the crude chart is a study in Fibonacci support and candle sticks. If you are a trader who uses Fibo’s as indicators of support and resistance then you will be familiar with this and then if you overlay your Fibo’s with candlesticks as I do then you have charts that can literally speak to you. Such was the case last night with the low candle bouncing off the first hourly support in a very aggressive way. Overall, though, crude did not take out the level it needs to show that the momentum is there to kick higher, or get our trend following system long, just yet.
EUR/USD: we said yesterday that the EUR was not quite there yet and we weren’t surprised that it turned lower based on the hourly technicals. EUR needs to kick on through the 1.2738/42 zone if its going higher. For the moment that seems unlikely.
AUD/USD: My trend following systems are long but the AUD is struggling to get through and hold above 1.0262 which is necessary to kick it toward the 1.0474 region. The consolidation overnight was encouraging for the bulls so we’ll know in the next 12 hours if the AUD is on its way higher or needs to reconsolidate the break of the trend line – I like it higher.
S&P 500: We’ll know in the next day or so if the S&P 500 and by extension the risk universe is going higher. Fundamentally it has little right to based on the recent data flow but does that really matter to chartist or the price – NO. We’ll keep an eye on this one
Data today is focussed on the RBA and the language they use to describe the data since they last eased and also what happened in Europe last week. We don’t see any chance of another cut anytime soon.
Here is today’s data and you can click here for the full week’s calendar.
And here is how the markets closed at 6 am this morning.
Have a great day.
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Please remember these are not recommendations for you to trade these are my views and I have my risk management tools and risk parameters that you do not have access to. Thus, this blog is for information only and does not constitute advice. Neither Greg McKenna nor MacroAssociates has taken your personal circumstances, objectives or financial situation into account. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.