A week after markets were buffeted by Fed speak and concerns about the FOMC stealing the punch bowl it would have been nice to get back to a little data focus this week but alas that is not to be. Intervention on Friday by Fed Governor Bullard, who released a press statement saying why he dissented and criticising his colleagues for allowing Bernanke to talk about taper, and “analysis” article from Fed mouthpiece Jon Hilsenrath of the Wall Street Journal, saying markets misunderstood the Fed’s message mean that in a week where we have a bit of a data drought that the 7, yes 7, speeches from Fed Governors this week are clearly going to dominate market action.
On Friday this combination rescued stocks from another down day and the bourses of Europe and the US closed off their lows but mixed. The Dow was up 41 points or 0.28%, the Nasdaq fell back a little down 0.23% and the S&P was up 4 points or 0.24%.
As you can see in the S&P 500 chart above the price on Friday finished about mid range – suggesting indecision – but also basically bounced off the second of the two important trend lines. So the S&P has not broken wide open yet the risk is that it does if it closes below 1560 on a daily basis.
Interestingly the US 10 year bonds were sold heavily rising to a close on Friday of 2.53% but just like the S&P there is support very near and I think that the high 50’s low 60’s on 2% is a good place for the sell off to end and a reversal to occur.
In Europe stocks closed mixed and lets face it they are just going to follow the que of the US markets if a half day behind this week.
The other big piece of news was that in China the PBOC, worried about talk of a bank falling over – or almost having caused it – took its foot off the throat of the local money market allowing Shibor, think BBSW or Libor, to fall back to more realistic but still elevated levels. This is an interesting time for the PBOC to be forcing banks to think hard about the policies they are using and the lending they are doing.
Xinhua reported yesterday that their is ample liquidity in the Chinese banking system and the pressure is coming from the shadow banking sector which reinforces my thoughts thatI believe very strongly that this is a policy that comes from the top of the Chinese government and as such is part of a re-calibration of Chinese lending and the Chinese economy.
It has huge implications for the global economy and specifically for Australia, the Australian dollar and the outlook for our miners.
Speaking of the Aussie dollar, while it isn’t exactly the darling of the FX universe again, having fallen 12 cents in a month and with Specs at another all time high based on CFTC COT data, it makes sense for a bit of rotation to other pairs and the euro is most likely as is the pound. Readers know I was bearish on both these pairs last week and we have had a good run and I was also short EURAUD late week to take advantage of the shift in sentiment between the pair. My sense is this will continue this week.
I am actually long Aussie this morning and will see how that goes over the next couple of days.
The 4 hour chart of the AUD above and my process suggests higher prices and also gives a clear stop level as you can see.
Commodities mixed
Crude was lower falling a massive 1.52% and is now back under $94 Bbl after the two day sell off at the end of the week. Gold recovered a little and sits back at $1292 and Dr Copper was 1.14% higher.
Data
IFO in Germany and the Chicago and Dallas Fed manufacturing surveys are about all there is.
Twitter: Greg McKenna