Macro Morning: Data dawn

Advertisement

Stocks were higher across the board overnight with the strength driven by better data in the US and China’s move to pump $60 billion of liquidity into their markets this week.

I like the way the Wall Street Journal summed up the manufacturing data we have seen in the past 24 hours or so because I think in a couple of lines they explain what the market is thinking:

Manufacturing in much of the world remained in contractionary territory in October, but there were signs of hope as China and Germany returned to expansion and U.S. growth continued.

Advertisement

So when the ISM in the US moved to 51.7 from 51.5 last month and against expectations of a fall to 51.0 it seemed to confirm to investors – overnight at least – that the global economy may have stopped deteriorating. Also helping the positive tone was the release of the ADP private employment survey in the US which showed that 158,000 workers were added a big increase from the 88,000 that was reported last month. Weekly jobless claims fell 9,000 to 363,000 last week. Consumer Confidence rose from 68.4 last month to 72.2 which is the highest level since February 2008, before Bear Stearns and before Lehman Brothers – truly amazing.

So with the data not getting worse and hopes that China and other markets are stabilising, stocks were higher in much of Asia which buoyed European bourses. At the close of play the FTSE was up 1.37%, the DAX 1.03% and the CAC up 1.35%. Madrid and Milan also both benefitted from the ebullient tone.

All of which contributed to a better open in the US and the S&P and other markets have been in the black from the opening bell posting solid rises. At the close the S&P 500 was up 1.09% to 1427 and as you can see in the chart above if the S&P can get through the old trend line at 1432 – which is never easy – then it might run a bit further. The Dow closed up 0.89% and the NASDAQ was up 1.25%.

Advertisement

Strangely, with a risk-on rally the US dollar actually rallied for a change, no doubt because of European problems but also because it is the source of the better feeling. The Aussie dollar also rallied and sits atop 1.04 as I write, as strong as an ox again but not yet broken out. USDJPY rallied and the Pound had an ugly reversal.

Crude was 1% higher after the EIA said US oil inventories fell 2 million Bbls against expectations that in the market for a decline of 1.7 million Bbls. Gold rose just a little to 1722 oz and the Ags were all higher as well with corn up 0.43%, wheat up 0.43% and soybeans up 0.99%. Copper was up 0.6%.

Lets have a look at some Met4 charts from my AVATrade platform.

Advertisement

EUR/USD: The better data in the US and the reemergent troubles with Greece combined to knock the euro of its pedestal. But it wasn’t a big 24 hours for the EUR/USD with a range of just 1.2924 to 1.2982 and it now sits at 1.2940ish. I’d just characterise this as range trade in the run up to some very important Asian PMI’s today and then non-farm payrolls on Friday night.

AUD/USD: The wall of selling at 1.04 gave a little ground and the high printed at 1.0409 overnight which was roughly the high from a couple of weeks ago. My level for a break of the range remains 1.0420 (simply 1.0410 + 10 points) but it has now clearly breached the roofline of the recent wedge formation and if it can get through the 61.8% retracement of the August/October fall at 1.0442 then it is off to the races.

Advertisement

Data: Nothing else really matters except the non-farm payrolls tonight. This is always the most important, or at least most watched, data release of the month but there is room for noise in tonight’s number given the change in compilation and the fact that whatever the release this will also then be factored into expectations about the outcome of Tuesday’s election for the US President – so it could be a little scatty and volatile in trade tonight.

Here is how the markets looked this morning.

Advertisement

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.

Disclaimer: The content on this blog should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation, no matter how much it seems to make sense, to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility and you should consult your investment or financial adviser before making any investments.