Spain was the fulcrum again overnight as the market reacted to Moodys decision to leave the embattled nation with an investment grade credit rating. Markets appear also to have been buoyed by the Spanish glacial slide toward asking for a bailout. Whereas the euro reacted to the previous night it was the turn of the Spanish bond market which saw the 10 year rally 0.32% to 5.45% which is the lowest level in 6 months.
I have a certain sympathy with the buyers of Spanish bonds as scary as that trade is still likely to be over coming days, weeks and months. Indeed at our Macro Investor strategy meeting earlier this week we had a discussion about what was happening in Europe and the thought was that the moves by the Germans is the real ground-giving of note. That is, it seems clear that the opposition that the Germans have hitherto shown is becoming somewhat more rhetorical. That’s important because the chances of a European break up are receding quickly and while this won’t fix the economy nor pay off the debt it does give confidence to the markets.
Which of course is what we saw last night with stocks sharply higher again in Madrid which was up 2.33%. The rest of Europe was more subdued with the FTSE rose 0.69%, the DAX rose 0.25% and the CAC was up 0.76%. But the Euro made strong gains hitting a high of 1.3137 and it sits at 1.3120 as I write.
US stocks were more subdued even though data on housing was pretty amazing, and it does seem clear that for the moment this sector of the economy is brighter than it has been for some time. The Commerce Department released data that showed that housing starts increased 15% last month to 872,000 units which is the fastest pace in 4 years. On the earnings front however the results released by IBM and Intel were disappointing but Bank of America was slightly better than expected.
At the close of play the S&P was up 0.41% to 1460 as the bounce away from the important trend line support highlighted recently continued. The Dow’s result was affected materially by IBM and it was up just 0.04% while the NASDAQ was up 0.10%. US Treasuries were higher with the 10 year selling off to 1.81% from 1.72% on Tuesday which is a 1 month high and right on the 200 day moving average. In price terms (remembering that price is the inverse to yield in bond land) as you can see in this chart it looks like Treasuries are going lower in price, higher in yield yet.
On FX markets, the euro lead the way higher, but it was catch up day for the Australian dollar which benefited materially from the recession of crisis mentality, a range break and traders clearly getting caught short. The Aussie’s move reversed its under-performance from the day before and the AUD is up 0.76% this morning to 1.0376 while the euro is up just 0.19% to 1.3122. So what do I say about yesterday’s thoughts on why the AUD lagged? Simply that they were wrong though it didn’t get in the way of riding the Aussie’s rally as you can see in the technicals below.
The Pound mirrored the euro’s move and is up 0.19% to 1.6147 while USD/JPY sits just below 79.00 at 78.92.
On commodity markets the move in the CRB continued and in aggregate it is up about 1 percent over the past 2 days. Ags were up around 1% for each of corn, wheat and soybeans. Copper continued its 2 day rally pushing another 1.24% higher. Gold was up another $3.90 or 0.22% and oz. to $1750 and oil was basically unchanged. OJ and cotton pushed sharply higher up more than 3%
Lets have a look at some Met4 charts from my AVATrade platform.
EUR/USD: The EUR broke through the important resistance we highlighted yesterday and while it hasn’t run to our target at 1.3160/70 as yet the outlook remains positive. On the day the shorter time frame charts, 1 and 4 hour, suggest a pullback to test the trend line is more likely than not and this level of 1.3045 would be strong support as will the 1.3065/70 which was the range top till yesterday. One of my systems is long now on yesterdays range break.
AUD/USD: Yesterday we noted that the MACD, or at least how I use it, suggested a push higher and that a run toward 1.0320+ was likely but the move higher that eventuated was very strong. Looking at the chart below you can see how I use range breaks and Fibonacci extensions – the first target was the 1.382% move with a secondary target at 1.618% of the size of the range. Both these moves have been satisfied and its probably time for some consolidation for the AUD now and I’d be looking for a move back to 1.0345/50ish initially.
Data: It’s all going to be about Chinese GDP and retail sales today is my guess.
No snapshot of where markets sat this morning sorry as I’m on the road.
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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