Last week was a good week for stocks and for the first time in ages and my summary of the week’s events had more positives than negatives from the fundamental side of the equation. But this week will need to see confirmation of the moves higher in stocks because of the interrupted holiday trade and also because in terms of the US stock rally it came on pretty thin holiday induced volume.
One of the tenets of futures trading that I was taught more than 20 years ago was that volume was the confirmation that supported a market move – we didn’t get that last week so as a result we are a little wary this week.
Keeping me wary as well are the negatives that are creeping in at the periphery of markets. I don’t know how these will play out or indeed if they will impact markets at all but with volume so low any one of these swans could be more disruptive than they appear:
- Argentina to re-default on debt restructured after the big default more than a decade ago and the recent US ruling in favour of the vulture fund investors in the original debt. These funds bought the debt at cents in the dollar of face value and are seeking the repayment of the dollar which Argentina is resisting but the Court said they have to pay.
- China just landed a fighter on an aircraft carrier – its first one – this really changes the game of geopolitics in the region even if it’s China’s first carrier. China can now project military power away from its shores in the way the US does and all dominant global powers have across time. This coincides with the new Chinese passports which show a map including many disputed territories as China – not very subtle either of these.
- Catalonian election – held Sunday Catalonia time if the election sees the pro-indepence and referendum party gain power we could see more potential instability around the Spanish situation.
- Pharoah Morsi – the Egyptian President has granted himself sweeping powers which essentially mean no-one can argue with him or rule against his decrees. We’ll see how this plays out.
- Greece continues to simmer on the back burner.
It is important to say that none of these should impact markets and probably won’t but just something to keep an eye on. And of course we are also watching the impact of fiscal cliff talks in the US given the market has rallied back so well over the past week and has a lot of embedded capital gains for the year in it.
So having called the rally in stocks last week we aren’t going to jump off the band wagon just yet but there is enough potential hiccups in coming weeks for us to drag stops up closer to market and to take some cash if the S&P 500 hits the 1418/21 region for the moment.
So at the half day close on Friday the S&P 500 was up 18 pts of 1.30% after playing catch up for the day off and the more ebullient tone from the Chinese data earlier in the week. The Dow rose 1.35% and the NASDAQ up 1.38%.
In Europe every index I watch except for Oslo, which was down just 0.08%, rallied. The German IFO certainly helped and buoyed European markets with the FTSE was up 0.49%, the DAX rose 0.89% and the CAC was 0.87% higher.
On Global FX markets the euro’s moves last week technically made sense but not fundamentally. I struggle to make any sense given the enduring problems and lack of resolution over Greece or even an agreement on the €1 trillion budget for the zone going forward. Instead the market preferred to focus on the “hope” of a resolution as opposed to the actually non-resolution which is very informative in itself. But the reality seems to be that the correlation between the S&P 500’s moves and that of the euro might have played more than a small role in this with the euro’s 21 day correlation with the S&P about 0.70 and still close to 60 over 55 days.
In Japan it seems that the putative PM Shinzo Abe is walking back from the attack on BOJ independence that he has been waging since it became clear there was an election coming a couple of week’s back. What possibly changed his rhetoric has been the tensions between his plan to raise inflation and the mountain of Japanese Government debt that needs to be serviced. It was widely reported in the last few days that if inflation rises to his 2% target then the cost of servicing the debt will exceed ALL of the expected tax revenue. This reinforces the USDJPY high for the moment for me even though it did come back very strongly to finish at 82.36 from the low of 82.05
Crude was up 1.03% to $88.26 Bbl rising from the outset as the US dollar was hammered by the strength in equities pushing US dollar denominated commodities higher. To wit, gold was up 1.35% to $1735 oz while silver rose 2.30% to $33.385 oz. Silver is approaching long term resistance which stretches back to the September 2011. A break of this line at $34.20 would open the way for a run to the recent high at $35.35 – one thing to note though is that we always respect trend lines and never pre-empt the break.
Lets have a look at some Meta 4 charts from my AVATrade platform.
EUR/USD: EUR ran toward 1.2985ish resistance we flagged on Friday making a high at the trendline of 1.2990 before pulling back a little. If this trendline gives way Euro can run to 1.3090/95.:
AUD/USD: The AUD broke decisively higher with the move in the S&P as you can see in the hourly candle comparison below. Any move through 1.0485 is going to pressure the AUD bears of whom there still seems to be plenty out there at the moment:
Data: We are watching the results from the Catalan election today as well as the Minutes of the BOJ’s recent meeting and of course the euro EcoFin meeting tonight and what they say and do about Greece. Tonight the Chicago Fed and Dallas Fed indices are out.
Here is how the markets looked at 7.45 this morning.
Twitter: Greg McKenna.
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