Macro Morning: More hope

Yesterday the Chinese HSBC PMI printed at 47.6 which is the worst outcome since March 2009 and backed up earlier flash estimates and the official Chinese PMI released over the weekend which was at a 9 month low. While the PMI is not the whole of the Chinese economy this is just another indication that the global growth engine is faltering.

PMI data in Europe was weak for the most part as well, perhaps not as weak as previously, or some may have thought, but still on the contraction side of the ledger in most cases.

But with the US out for the Labor Day holiday markets in Europe rallied – obviously they are waiting for Draghi on Thursday night our time. There is also the weird view that bad data is good data again. A Reuters story this morning said:

European shares crept higher on Monday after weak factory data highlighted the poor health of the global economy, keeping alive talk of fresh stimulus from major central banks.

However, with U.S. investors out for the Labor Day holiday, markets were stuck in a limited range.

Expectations that central banks would soon take steps to boost growth increased after separate surveys showed manufacturing activity in China and Europe slowing by more than expected in August.

“I think we’re going to see more stimulus from pretty much every central bank on the face of the planet,” said Michael Ingram, market analyst at BGC Partners.

“We’re living in a globalised economy. It’s a globalised slowdown. So policy makers have to step up to the plate.”

I feel like I’m living in a Salvadore Dali painting when this is the reality of the markets. But this tells you how the markets are going to react if we get stimulus from China and the Fed.

Likewise Draghi later this week can only really disappoint because he has already achieved the aim of stabilising European bond yields but now the market wants more. Hopefully he can deliver a plan that works for the here and now but crucially for the future. The high level of European unemployment, particularly amongst the young, is a tragedy which needs fixing.

Anyway enough editorialising and onto the closes. The FTSE rose 0.82%, the DAX was up 0.63% and the CAC rose a stunning 1.19%. Madrid was up a less robust 0.24%.

On commodity markets, crude rallied a little further and sits at $97.02. This is a really good study in the strength of trendlines and the folly of preempting breaks of these lines. From a fundamental standpoint I was convinced with everything going on that crude was going to break lower last week but as technicals are so much a part of my craft I wasn’t short nor trying to preempt the break. Gold likewise – as you know I was questioning the break through really important resistance the week before and waiting for the weekly close.

In FX land, the Aussie was under intense pressure after the raft of data in Australia, particularly retail sales and China PMI, reinforce the growing notion that the sweet spot for Australia is well and truly passed. The low overnight of 1.0233 was pretty much dead on the 38.2% retracement level we identified over the past few days. In the context of the questioning of the Australian miracle and the weak data, the Aussie is actually doing OK and not exhibiting the usual tendency to crash. But my “fundamental” view is that the Aussie is a shot duck and that its fall back to and through 1.00 is inevitable in time unless or until we get QE3. Even then the Aussie is going to continue to lose ground on the crosses as money rotates to better bets.

Other currencies were fairly quiet with the Euro trading a 1.2562-1.2605 range and the single currency sits at 1.2593 as I write. Likewise the Pound sits at 1.5888 having traded a 43 point range in the last 24 hours. USD/JPY barely budged trading 78.23-38 as traders put their feet up. This is instructive though as it tells you that it is the USD side of this cross that is driving it – that’s important for traders to know.

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

EUR/USD: Can the Euro build momentum to push through this big roofline for the down trend that reaches all the way back to the 1.4550/60 top in August 2011? The level today is 1.2646 and this trendlines slope sees it falling about 10 points a day which makes it interesting come Thursday night and Draghi’s decision/announcement:

AUD/USD: When I look at the candlesticks and the obvious 3 wave down move and the fact that the AUD/USD pulled up last night at pretty much the ding dong 38.2% retracement level I see a chart that just might find some support for a few days. Thus 1.0230 and 1.0190 remain support and I would expect them to hold and the AUD to rally from here – or at least the fall to slow down:

DATA: No one expects the RBA to cut today although I reckon they should. But the RBA announcement this afternoon is important insofar as it will give us a read on where the RBA thinks the mining boom and the terms of trade are. It will also give a read on the growing expectation that more cuts are necessary for the Australian economy. ISM in the US is also very important.

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 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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  1. “the Aussie is actually doing OK and not exhibiting the usual tendency to crash. But my “fundamental” view is that the Aussie is a shot duck and that its fall back to and through 1.00 is inevitable in time unless or until we get QE3. Even then the Aussie is going to continue to lose ground on the crosses as money rotates to better bets”

    I dont think its going to do much dropping until the RBA gets off its arrogant a$$ and starts lowering rates.