Apologies for no links today. Struck by illness!
Last night the corporate earnings story held stock markets up and weak US economic data built hopes that QE3 is not a matter of if but when. It’s kind of a golden compact we alluded to in yesterday mornings piece; a situation that I am not wedded to nor that I believe sustainable. But there’s no point fighting it. Already my longer term view on the Aussie has been completely steam rolled by the short term price action.
What we have at the moment is a disconnect between the economy, earnings and the markets. Markets simply got too bearish and hot money too skewed and focussed on the negatives and even though companies are under pressure they are at least still profitable and experts at managing expectations. We saw this again in the releases this week – companies in the US and Europe are hitting or beating downgraded expectations even when there are big drops from previous earnings and estimates of same.
In data, the US Philly Fed manufacturing index improved from -16.6 last month to -12.9 this month but this was still worse than expected and the sub-components were terrible with new orders down for the third month in a row and employment near a three year low. Jobless Claims, which fell spectacularly last week to 350,000 reversed that move this week rising to 386,000 this week – a mirage it seems of better employment prospects its seems but consistent with recent non-farm payrolls. Existing home sales also fell heavily again and the Leading Index of economic activity for the US fell 0.3% which was more than expected.
In Europe, Spain was under pressure assailed by the Germans once again. German Finance Minister Schauble said that Spain’s troubles are far from over and that the sovereign can’t avoid responsibility for the debts of the bank recapitalisation and rescue package. Of course Spanish bonds continued their sell off and are now back above 7% in the 10-year part of the curve.
But by the close of play stocks were up strongly in Europe, less so in the US. The Dow closed up 0.27% to 12,943, the S&P 500 0.26% to 1,376 and the NASDAQ up 0.79% to 2,965. Earnings in Europe have been pretty good so far this reporting round and that seemed to buoy markets with the FTSE up 0.5%, the DAX up 1.11% (German Parliament passed the bailout bill) and the CAC up 0.87%.
In commodity markets the CRB roared through 300 rising 5.89 pts to 304.97. Corn fell back 0.74% but wheat and soybeans were up 3.4% and 1.95% as the drought in the US takes further hold and no doubt traders are pushing their luck. Crude was equally through the roof again up 2.82% and copper was also higher up 1.67%. Middle East tensions and hopes of stimulus are bidding these two up.
In FX markets, the Australian Dollar remains the stand out pushing hard against the Canadian and Kiwi dollars, making a new all time higher against the Euro and another marginal low against the Pound. Against the USD it now sits atop 1.04 and not far off the 1.0465/70 target we noted earlier this week as resistance. The Euro once again dropped down into the low 1.22 region where it found support – again – as it continues its basing pattern. It is going to be an interesting close to the week tonight.
Just briefly in other news:
- Keep your eye on the Middle East, the Israeli’s have blamed the Iranians for yesterday’s bus attack in Bulgaria (it was a caucasian apparently, though) and I saw something saying the US will soon have 5 carriers in the Gulf. Feels like trouble brewing and oil is reacting.
- I saw on Prag Cap that the measure of investor sentiment hit a new two year low recently – hard for stocks to fall if that is the case. It’s baked in the cake if you know what I mean.
- Google’s profit was up 11% and the stock rose 3% after the bell.
- In a nice way of guaranteeing it, the New York Fed is talking about limiting withdrawals from money market funds so they can’t suffer their version of a bank run. So why have your money in them if you don’t have liquidity?
Lets have a look at some of the markets we follow.
Crude: Up again overnight as fundamental concerns over the mid-East combine with enduring positive price action. looks to me like a move through $93.27 might open substantial upside, if it happens:
EUR/USD: Same for the Euro as it is trying to base and my subjective indicators suggest that even though the market retains a longer term bearish bias, a rally toward 1.24 is possible on the week. 1.2365 is the 38.2% retracement of the July selloff. Suppport remains 1.2220 then 1.2160/90:
AUD/USD: The next level is 1.0465/70 as the Aussie has been biased higher as suggested. If this level breaks then the AUD looks like it can run to the low to mid 1.05 region and if it gets through there, then the 1.08 region comes into view. Not there yet and we’ll see how the Aussie closes the week for a bigger picture view.
SPI 200: Broke through 4157 target yesterday and even through the top of this megaphone but is off a little. Perhaps some consolidation today with support at 4124 then 4095/4105 zone and below that 4080/88.
DATA: Feet on the desk today – not much going on. I’m heading to Sydney for the Trading and Investment exhibition.
Here is today’s data and you can click here for the full week’s calendar.
And here is how the markets closed at 6.00 am Saturday Morning courtesy of AVAFX
Twitter: Greg McKenna. He is the Chief Investment Officer of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
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