Macro Morning: Yesterday never happened

Markets reversed the moves of Monday in European and US trade overnight with stocks and the euro sharply higher and the Pound returning to its recent more usual weak tone.

It’s hard to tell exactly why markets are up so sharply but it tells you much about the tone at present when you read excuses for why the fall in the US non-manufacturing ISM is still good and markets ignore the weak tone in the Italian and French Markit services PMI in favour of the very good German number of 55.7 against 52 expected.

Perhaps it was the solid performance out of China with the HSBC services PMI that got things going but then the Hang Seng was down more than 500 points yesterday and Shanghai was up just 0.20%.

Markit Services PMI

So it is hard to actually put your finger on what really drove the turn around other than for the moment the euro bulls, Sterling bears and  stock buyers have the ascendancy.

At least for the moment.

On global stock markets it was bounce time with the European periphery leading the charge higher but while Europe didn’t quite recover the extent of the losses the previous night in the US it was a different story.

Yesterday of course the headlines were all about stock weakness and potential for a top and a reversal – these conditions may still exist –  but one of the reasons that I noted that the Dow was still up on a two day look in yesterday’s morning note was that I considered the price action a bit of noise. The corollary of this is that today’s price action is also noise but then ANY ONE BAR ( or day) MOVE IS NOISE.

Adding to the notion that the moves are noise and certainly not fundamentally driven is the fact that even though the results from the German Markit Services PMI was good, as it mirrors China’s recovery, and particularly when compared to the very poor results for Italy and France, the DAX under-performed, rising just 0.35% against a rally of 0.96% for the CAC in Paris and 1.05% for Milanese stocks. In Madrid the market pushed 2.2% higher while in London the FTSE bounced off support and rose 0.58%.

With 22 minutes before the close the Dow is up 121 points or 0.86%, the S&P 500 is up 1.16% to 1513 and I am looking like I am going to get the high on this wrong again and the Nasdaq is up 1.37%.

In Asia the Nikkei was off sharply but we‘d expect that the moves in the US and Europe plus the move of the USDJPY above 93 will fix that today. The Australian market is also likely to benefit although lower rates make it harder for banks to make so much cash and given this rally is a money printing induced rally not a fundamentally driven demand style rally commodities aren’t broadly playing a big role so the miners might lag.  Just another reason to rotate away from Australia.

Looking at global FX markets, the euro’s bounce was in a huge range and a big recovery for a 24 hour period. The low in Asia yesterday was 1.3457 and the high overnight was 1.3597 and it rests at 1.3579 at the moment up a little more than 0.5% on the day. As you can see in the chart below euro’s low was right on our fast moving average which normally acts as first support in an up trend which reinforces that for the moment the up trend remains in place. A move through the fast moving average is usually a signal to scale out of positions but not a reversal.

For the Aussie the release of the announcement that the RBA was holding rates saw the Aussie spike to 1.0456 initially but once the words of the statement were revealed to be seriously dovish and much more so than we would have expected the Aussie got hit hard trading down below 1.04 making a low at 1.0366 which is just above the low of Friday night at 1.0361. It currently sits at 1.0402 for a loss of just 0.34% against the USD on the day but it is looking weak as money is rotating out of safe harbours all around the world. It’s a sell on rallies for the moment.

Most interesting is the fact that AUDNZD is at its lowest level in more than a year and what might be considered the base of a multi-year range. This makes no sense fundamentally and economically but it does suggest the rotation theory has legs.

The Yen also resumed normal transmission falling 1.07% against the US dollar and more against the euro. Symbolically the BoJ Governor Shirakawa is stepping down a few weeks early which means that it is easier for Japanese PM Abe to put his man in charge sooner than expected. The BOJ is already leaning the way the government wants and this simply reinforces the changes that are afoot as the currency wars hot up.

On commodity markets, Nymex crude was up 0.46% to $96.61 Bbl while gold was down 0.17% to $1670 oz. Silver continues to be the traders precious metal rallying 0.5% to $31.67 while the ags were mixed but frozen OJ was up more than 1% again.

Lets have a look at some Meta 4 charts from my  AVATrade platform.

EUR/USD: 

For the moment support held and euro is in a 1.3400/1.3711 box:

eur, eurusd, euro, euro (eur) price quote

AUD/USD:

Aussie is starting to look weak as confirmation that money is rotating out of safe harbours appears all around the world. It’s a sell on rallies for the moment while below yesterday’s high:

aud, audusd, australian dollar, australian dollar price quote, audusd 1 hour chart

Data

It’s Waitangi Day in New Zealand today but in Australia we have retail sales for December before German Factory Orders tonight which we are guessing, and its only a guess, will support the euro.

Twitter: Greg McKenna

Here are how some of the markets we follow looked at 7.50 this morning

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Comments

  1. t’s hard to tell exactly why markets are up so sharply

    Lots of gyrations often precede a crash. Quite a few market prognosticators are saying a big correction is coming… this could be the first sign.

    • Deus Forex Machina

      Hi R2M

      You are 100% correct normally so we’ll see here.

      I was going to say that myself but thought it might mess up my overnight message/report.

      Cheers

      Greg

      • Hey, I’m bearish on this money-printing nonsense (cause it is, in many ways – though not all – nonsense), but I would not at all be surprised to see stocks continue to climb…

        It’s just that I have so often bearishly called “correction!”, but have been wrong in the timing and magnitude too many times since the GFC.

        Financially, I’m still ahead, but I am learning that “The market can stay irrational longer than you can stay solvent….so, heck, I’m short-term bullish on the various oft-quoted nominal figures! Oh, and I am also bullish on certain parties benefiting from the entrenched systemic wealth-transfer, mainly from the public and the “lower classes”.

        Bearish on underemployment globally, household and business margins.

        But for the time being, the Funny (Printed) Money will flow and “succeed” at doing its job of pumping up targeted nominal figures and systemically transferring wealth.

        My 2c
        Stewart

    • Draghi’s going to hold on rates Thursday, in keeping with his ‘hearts and minds’ confidence trick, in order to get the blood pumping again…. and the euro will continue its poisonous rise.

      It will continue to strangle exports from Spain, Italy, Greece and France. (Not to mention discourage tourism over summer)

      And we may soon see calls for Germany’s expulsion, rather than the periphery having to leave!