Stock market sentiment was dominated overnight by further hopes of stimulus after the ECB said in a report that it is prepared to use “non-standard” monetary measures and Chinese inflation data suggested that the PBoC has plenty of room to stimulate further.
The inflation outlook, and the room it gives the PBoC, outweighed the weaker than expected industrial production data which came in at 9.2% against 9.7% expected. The inflation data released yesterday in China showed that it has dropped back from the mid 6% region a year ago to 1.8% currently. This is fantastic news and certainly gives scope for cuts but equally means that the lower nominal growth will be discounted by a lower inflation rate meaning the “real” GDP growth rate won’t fall back as far – its a win win for Beijing.
At the close of play in Europe the FTSE and CAC were up 0.1% and 0.5% respectively while the DAX was down marginally. Madrid was down 0.54%. In the US stocks were similarly tuned to the Olympics or their summer holidays with the Dow and S&P 500 about flat with the NASDAQ up 0.2%.
In commodity markets, corn surged to $8.22 a bushel before reversing slightly as the drought that is gripping the US intensifies. A move through $8.28 will kick corn and likely the grains complex up another level. Soy likewise rallied hard and then reversed and we might be seeing an end to the recent uptrend based on the soy candlestick – we’ll keep an eye on this one. Elsewhere the overall CRB was up 0.49 points to 304.81 and crude was up again to $93.56 – crude might be losing a bit of momentum but is still in a solid uptrend.
In FX Land the Euro continued to slip back as buying momentum has faded and the sellers are getting a little bit more emboldened. In the context of the past few weeks and some of the big up moves we have seen on a daily basis this has been a quiet week but it is clear that the Euro’s natural tendancy is lower and it only rallies and rallies sustainably on announcements. A close below 1.23 on the week will open further downside next week.
For the Australian Dollar what a difference 4 thousand jobs can make. Yesterday’s release of the employment data was only a little above market expectations yet the Aussie leapt 50 or 60 points instantaneously and made a high of 1.0611 at one point. In truth its not the 4,000 extra jobs or the small fall in the unemployment rate but rather the reaction tells us that the market was positioned for, that is guessing on, a weaker number but got it wrong. See bellow for the technicals.
Interesting fact for the day: Showing how economists still don’t get people is a report in the press this morning about the habits of Australians and ATM use since the $2 “foreign ATM fee” came in a couple of year ago. The big shock is that people are walking past the the foreign ones to find one where they don’t pay a fee with foreign ATM use dropping from 50% to 40%. Older Australian’s, the ones the RBA thought didn’t have a choice, now only use foreign ATM’s 10% of the time. The SMH quotes the RBA as saying, it’s behaviour that ”cannot be accounted for by the model of ATM fees presented in this or any other existing paper”. Humans really screw up your models sometimes.
Lets have a look at some of the markets we follow using our AVATrade trading platform charts.
EUR/USD: Euro is retesting the old downtrend line and is and should find some support here around 1.2290/1.23 but a close below 1.23 tonight opens up further downside.
Longer term the down trend remains intact with resistance at 1.2472, 1.2572 and 1.2740/50. Support is 1.2290/1.2300 and then 1.2150/1.2110.
AUD/USD: The AUD continues to be contained by the top of what is a fairly clear daily up trend 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.
The last day’s trade was 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.
DATA: European inflation data will be interesting tonight as will Japanese IP today.
Here is today’s data and you can click here for the full week’s calendar. Please note that data coloured blue is important to me and that which is coloured red is important to everyone.
And here is how the markets closed at 6.00 am Saturday Morning courtesy of AVATrade
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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