Macro Morning: No volatility

See the latest Australian dollar analysis here:

Macro Morning

The VIX volatility index hit its lowest level since 2007 overnight as the Dow printed another new all-time high and the troubles with Italy and the problematic Chinese data over the weekend were ignored.

As you can see in the chart at right, which is the VIX over the past 12 months, the markets estimate of volatility has or is being washed out of the prices. That makes sense as the VIX seems to only reflect one side of the risk distribution and rise on fears and falls in the stock market and tends to fall when prices are rising as they are at the moment and have been  for many months now. Worth noting though is what Sam Ro of Business Insider wrote this morning:

markets are establishing new highs as earnings growth expectations continue to come down. The technical term for this phenomenon is “multiples expansion” as the price-to-earnings ratio is increasing.  When multiples are expanding, stocks are getting more expensive.

Not telling, just saying.

At the close and remembering that the markets close at 7am Sydney time now after the US daylight saving change over the weekend, the Dow was up 50 points or 0.35% to 14,447 and closing on its highs. The Nasdaq and S&P 500 were both equally strong into the close finishing on their highs of 3,253 and 1,556 respectively for gains of 0.27% and 0.31%. Of course this is another new all-time high for the Dow and the S&P 500 is getting very close now needing to only rise 9 points to 1,565 to reach its peak.

In Europe the better than expected German trade data couldn’t help with the FTSE was higher rising 0.31%. The DAX was largely unchanged off 0.03%, the CAC fell 0.11% and Italy and Spain were hit a little dropping 0.69% and 0.86% respectively. Italy GDP data confirmed the weakness in the economy showing yoy GDP growth in 2012 slightly weaker than expected at -2.8% with the quarterly number printing at -0.9% as expected.

Europe is simmering with Italian 10 year bonds having conclusively broken the down trend from last years sharp sell off recently and they rose another 7 points overnight to 4.66%. Italy is an interesting look into the future and it is worth noting as Zero Hedge pointed out overnight that Bepppe Grillo is no flash in the pan populist. He seems to have held the views that propelled him to the 25% of the Italian vote that him and his team garnered in the recent election. Crucially and scarily Grillo  is captivating in this piece and you can see why the Italian population flocked to him at the election. He is as good as Billy Graham in his day and dare we say it some of the more nationalistic European predecessors of the last century.

But that is long term rhetoric and we can only trade the market in front of us. So looking at the charts euro clearly has a floor around 1.2950/60 and a push below here is required for it to head toward our next bearish target of 1.2650. In the interim if it can rally a bit more as the charts suggest and if it can get through 1.3110 it can run a little further toward Fibonacci resistance at 1.3244 which roughly coincides with the old trend line as you can see in the chart below.

In other FX markets the Aussie’s recovery of the low of 1.0200 was very strong and it sits at 1.0266 this morning up 0.61% and slightly below the high of the past 24 hours of 1.0277. The gap lower yesterday morning put the Aussie under pressure but we employed our little “Gary Gap filler” strategy expecting a move back to 1.0236. The persistence of strength helped change the short term outlook and the crossover of our JimmyR moving average system was synonymous with the sharp spike higher. We didn’t get that bit of the run but the Aussie is starting to look like it has some good buying coming in again on dips and while it is still within the 1.01/1.03 box the chances of a topside break are growing.

The daily chart is very messy and you can see the moves on the 4 hour chart there is some topside momentum – but 1.0300/15 is the key resistance.

In other trade USD/JPY was up again trading to a high of 96.36 and it sits just below there this morning at 96.28 for a rise of 0.34% on the day. Sterling is largely unchanged which is a good performance given that the low of the day was 1.4863 and its sits at 1.4916 this morning. USDCAD was lower by 0.22% at 1.0266.

On commodity markets crude was off 0.13% but much better than the $1 it had been off at one stage. Gold is marking time around $1,579 while silver fell 0.34% to $28.90 oz. Copper was up 0.34%. Corn rose 1.34%, wheat rose 0.58% and soybeans rose 0.41%. Frozen Orange Juice rose another 1.8% – what a market.

Data

New Zealand House Prices this morning along with some data out of Japan and then our favourite indicator for the Australian economy the NAB Business Survey. Tonight there is a raft of Price data out of Europe, Manufacturing in the UK and Redbook sales in the US..

Twitter: Greg McKenna

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