Macro Morning – Investors pile in

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It is no understatement to say that the data out of Europe and the US was on the weak side last night yet we are confronted with a sea of green – positive performances across the stock and commodity markets.

It would be a reasonable question to ask how that could be but the simple answer is that transmission mechanism between economics and markets can at times be very slippery.

A great example of what drove markets higher overnight was a quote from a money manager I read on Bloomberg yesterday. The money maanager was talking about the bearish economic outlook and the troubles in and worries about Europe as being foremost in his mind and the allocations within his companies $340 billion funds under management. But he was also quoted as saying he was worried “I’m too bearish”.

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Thus what we have at the moment is essentially a reallocation of assets from bonds or cash to equities as big investors re-appraise the chances of Eurogeddon and are now focussed not on capital preservation and out performing their index but underperforming benchmarks by not having enough money at work.

It is ever thus with the swings in sentiment but it helps explain the disconnect at present. Especially since there are still clear if mixed signals on both sides of the Atlantic that elements of both central banks will contemplate enormous new stimulus efforts.

As John Mauldin wrote over the weekend we are essentially going to run with it but have our bags packed and ready to get off when the time comes. Indeed Marc Faber was quoted overnight as saying the S&P can rally another 100 points up to 1500 – AND THEN COLLAPSE.

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To the markets and stocks were green across the board with the Dow finishing up 50 points for a gain of 0.39% to 1,3168 although it had been up as much as 99 points at one stage. Thye S&P 500 rose 0.49% to 1,401 and the NASDAQ was up 0.87%.

In Europe British bank Standard Chartered got smashed after news of the New York Regulators hit the markets down 25% at one stage before closing down 16% but the FTSE rose 0.56%. What is it with Pommie bankers? The DAX was up 0.71% and the CAC 1.52%. Madrid had another spectacular day rallying 2.20%.

On commodity markets the CRB rose another 2.12 points to 303.87 with crude breaking out and up 1.40% to $93.51 Bbl, heating oil and natural gas have gone with it. Senior Iranians in Syria will be helping this as much as the risk rally. Dr Copper was also up, rising 1.50% but the grain complex was lower across the board.

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On currency markets the Euro made a high of 1.2439 before pulling back to sit at 1.2397 presently. The Aussie never really kicked on after the RBA’s decision to hold rates steady which is hardly surprising and the frothy comments about 1.06 were just that as the Aussie has respected pretty solid resistance and now sits at 1.0557 – not far below but still respectful. GBP sits mid range at 1.5620 after rallying to a high of 1.5682 and a low of 1.5566.

Lets have a look at some of the markets we follow using our AVATrade trading platform charts.

EUR/USD: Again the Euro couldn’t really kick on with it and looks like the MACD is rolling over to me suggesting some downside consolidation. As I noted yesterday, momentum is fading on the 4 hour charts as the Euro consolidates and we could see a move back toward 1.2330/50 again.

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Longer term the down trend remains intact with resistance at 1.2472, 1.2572 and 1.2740/50. Support is 1.2300/10 and then 1.2050/1.2110.

AUD/USD: You can really see the beauty of the trend channel we highlighted yesterday and anyone watching it would have been selling over 1.06 when the hyperbole was getting going. While still in a clear uptrend the AUD has pulled back is at the top of what is a fairly clear daily uptrend from the last two months trade and continues to have a reasonably big level overhead at 1.0680/90 which is the tentative downtrend line from the 1.1080 high in 2011.

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The last days trade very indecisive with a downside bias probably again today. Support is 1.0530/40 again today and on the week 1.0450 which held so well last week will be solid.

I’m on the road for the next few days so forgive the absence of the price charts.

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