Stock markets drifted overnight, Apple briefly became the most highly valued company of all time and the ECB and Bundesbank stuck their oar in water about the mechanisms for bond buying. By rights this last fact could have knocked the markets substantially lower but that it did not tells us much about both the Summer holidays and market positioning.
After I published Macro Morning yesterday, I saw that German Newspaper Der Spiegel ran a piece targetting a cap on spreads to of EU countries (HT Joe Wiesenthal at BI) to the German benchmark bond. I didn’t bother to tweet or post about it because I thought it fanciful and a dumb idea as it would blow German bunds to Kingdom Come. That is, each time the periphery approached the “spread limit” the easy fix was to sell Bunds so the spread compressed and then you could sell the periphery again. Germany loses at every turn under this regime.
Then the ECB came out and said it was wrong to speculate on the future of aid and that it will act strictly within its mandate, while the Bundesbank said:
“The Bundesbank holds to the opinion that government bond purchases by the eurosystem are to be seen critically and entail significant stability risks,”
That’s the old plan let alone the Der Spiegel one – so I’m pretty sure that the idea is toast – as it should be because it’s just like the ERM which saw George Soros blow up the Bank of England just with a different shape.
Yet at the end of play in Europe Spanish 10’s while off their lows (as you can see in the chart) had still managed to rally 16 basis points to 6.28%. Italian bonds were basically unmoved. On stocks markets there were marginal losses everywhere except Copenhagen which rose slightly. The FTSE fell 0.48%, the DAX dropped 0.10% and the CAC fell 0.22%. In Madrid the stock market had a more rational (who said that word) fall in consideration of the above, falling 1.12%. In the US the big indexes were basically unchanged but the interesting news was the Apple share price which rallied to a new closing high of $665.15 up 2.63% making it the most valuable company in the history of the world. Or should I say the company with the highest market capitalisation as value is a nebulous concept. The S&P closed unchanged at 1418, the Dow fell 0.03% and the NASDAQ was off 0.01%. It is a very quiet this week before PMI data later – perhaps this might get things moving.
Commodity markets were not quite so quiet, the small move on the CRB of just a 1.28 point rise to 304.76 belies the internal dynamics where some big moves were had. While crude was roughly unchanged around $95.97 Bbl, silver rose 2.7%, copper fell 1.26% ostensibly on disappointment over Europe but that seems tenuous to me. In the grains, corn rose 2%, soybeans 2.24% and wheat 0.91%. Orange juice is the latest food commodity to go on a tear rising 3.3% overnight as it is trying to bounce off a double bottom from May and July/August.
In FX land is was a fairly quiet 24 hours. The Aussie pushed lower initially but found support at the bottom of the trendline (as it should) but sits in the middle of its tight range at 1.0442 presently. The Euro likewise was dancing on the spot with a range of 1.2298 to 1.2367 and sits at 1.2344 presently. USD/JPY slipped back a little from around 79.50/60 to 79.38 presently – not really much of a move. Today the RBA minutes might give more colour around what the RBA discussed about the Aussie Dollar and its value might be important for FX traders today.
Lets have a look at some of the markets we follow using our AVATrade trading platform charts.
EUR/USD: Yawn – commit your capital somewhere else I reckon unless or until Euro closes above 1.2383/88 recent highs from where it can probably kick on. Euro has been drifting lower but is realistically range bound and boring.
1.2240/50 is key short term support and then 1.2150/1.2110. Resistance at 1.2350/60, 1.2383/88, 1.2450/72, 1.2572 and 1.2740/50:
AUD/USD: The AUD’s up trend was supported again yesterday. A break of 1.0400/20 would be needed to signal further downside but we always respect trendlines until or unless they break. Topside resistance is 1.0480/95 over the next 24 hours which is the downtrend from the pullback at the top of the channel.
DATA: RBA minutes today at 11.30 and then I’m always interested in what Fed Governor Lockhart has to say tonight.
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 this 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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