Macro Morning: Draghi opens the door

The Dow made a fresh intraday high on the back of the improving jobless claims data which printed on the right side of expectations and gives some hope for a positive non-farm payrolls outcome later tonight Asian time. Of course in the context of market jobless claims have never really been a big indicator of things but as Joe Weisthenal of Business Insider has pointed out many times now since 2007 jobless claims have been a very important driver of the stock market’s moves.

So good jobless claims equals a stronger stock market and overnight at least it meant a slighthly weaker US dollar against the euro and the Aussie while sterling and the yen remain pressured by the fear of aggressive monetary easing as we await their new governor’s taking office.

Looking at the stock market, the Dow made another new intraday all time high at 14355 and closed up 33 points at 14329. The Nasdaq is up 0.30% and the S&P is up 3 points or 0.16%. Since the close the results of the Fed’s stress tests have been released and I just saw a couple of analysts talking on Bloomberg TV saying that these are good results which open the way for the big banks to increase their dividends which should be support of the stock market again tonight.

In Europe markets were stronger in the early part of the day before pulling back a little but in the end the FTSE was up 0.18%, the DAX rose 0.26%, the CAC climbed 0.54%. In Milan and Madrid stocks rose 0.30% and 0.36% respectively.

In central bank land Mario Draghi tried to talk the talk and walk the walk of positivity about the outlook for European growth in the second half of the year. That is his job. While he was talking things up he let on that that the ECB had considered an easing this month which was interpreted in some quarters as being quite dovish. This didn’t stop the euro from staging it best rally since January 10th to a high of 1.3118 this morning and sits not far below it now.

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

Yesterday we said that while the euro was above 1.2970 it was holding in. The low was actually 1.2964 over the past 24 hours so the recovery has been spectacular as you can see in the chart above. It looks like the biggest one day rally since early January but the euro hasn’t even managed to get back to the fast moving average yet. So it is still in a downtrend. Having said that, the way the set up of our usual indicators looks is that euro could rally toward 1.3200/15.

FT - Osborne to hand Carney the reinsIn the UK the BoE stood pat also but an article on the front page of the FT in the UK claiming that Chancellor of the Exchequer George Osborne is going to give the incoming BoE governor Carney his head by changing the bank’s mandate is likely to have been part of the reason for sterling’s acute weakness early in the UK day and why it’s rally has been an aborted one leaving GBPUSD basically unchanged on the day.

I am on record as saying that in time I think the GBPUSD rate is headed toward 1.42 eventually but there is room for a rally sometime soon because Carney is a central banker of some repute. It was his idea the Fed borrowed when it declared a time bound monetary easing and in many ways he has been the central bank leader of most note over the past few years. So yes Osborne can change the mandate and yes Carney can use his toolkit to try to fix Britain but in the end he is still a central banker and he will not want to destroy centuries of respect that the BoE has built up nor threaten his own reputation by doing anything that we might call “silly”.

Looking at the Aussie it was dragged higher by the euro continuing its fractured trade within the 1.01/1.03 box making a high of 1.03 overnight before pulling back to 1.0273 at the moment. Yesterday we said the Aussie was biased back to 1.0215 and the low of the last 24 hours was 16. On the hourly charts the Aussie looked like it was mapping out a nice head and shoulder pattern and we sold some in the 1.0240 region yesterday afternoon. That didn’t work out so well as you can see in the chart below.

aud, audusd, australian dollar, australian dollar price quote, audusd h&s3

The Aussie is above our fast moving average, the middle of the Bollinger Bands and a push through the top of the Box and or the slow moving average at 1.0312 would suggest that a base has been formed for the minute. We’ll see how it plays out.

On commodity markets Nymex crude rose 1.24% to $91.55 Bbl. Gold and silver were largely unchanged at $1,574 and $28.73 oz. respectively. Copper rose 0.72% and the Ags were higher with wheat up 1.55%, soybeans up 1.28% and corn up 0.49%.


Non-farm payrolls is the big one over the next day of trade and the market is looking for a rise of 160,000 and an unemployment rate of 7.9%. But before that we get some important data from other nations. In Japan GDP and trade will be released and in China we will see trade data also. In Germany industrial production will be released. Over the weekend Chinese CPI, PPI, IP and retail sales will be announced.

Twitter: Greg McKenna

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  1. It amazes me that in the US you can have 47 million people depending on food stamps to have a regular meal.

    But somehow a reduction of 7000 less new jobless claims is seen as important

    In perspective there are 313 million people in the USA