As you all know it doesn’t matter whether I trust a market move or not, the market is the market and it goes where it will. So the fact that I didn’t trust the previous night’s rally mattered little to the stock market bulls who have been buoyed by a release of some of the pressure in China and of the weaker US GDP which allowed US 10 Year treasuries to rally a little and reduce the pressure from that angle.
Also helpful were some soothing words from Fed officials including noted hawk Jeffrey Lacker, President of the Richmond Federal Reserve, who was at pains last night that the market was way ahead of the Fed on the pace of tightening. He reiterated that the Fed was not about to shrink its balance sheet anytime soon. But that still says they are going to taper and, as I have shown before, it is not the stock of the Fed balance sheet that has been important for US equities over the past 4 years but the flow of the Fed’s purchases. So a slowdown and then eventual halt to bond buying undermines stock market prices all other things equal.
The 3rd read of GDP in the US seems to have helped as well with a fall back to 1.8% as the household sector was the big driver of this fall being revised to 2.6% from 3.4% at the last lead. It is an interesting time for the US economy, it is clear that it is doing better in its own right and relatively to other jurisdiction but the question of escape velocity is something altogether different and while I’m not convinced it’s there yet it doesn’t mean the Fed isn’t going to continue to talk of and then actually begin to taper its bond buying.
Overnight the Dow was higher, up 150 points or 1.01%, the Nasdaq up 0.84% and the S&P up 15 points to 0.94%.
Even though I don’t trust this rally the reality is that on the charts it looks like it might have legs to get to 1606/1626 if it can get through this zone where it closed and which is identified by the orange line on the chart.
In Europe things were super ebullient with the Gfk Sentiment index printing better than expected at 6.8 from 6.5 but China helped and the tone in the US no doubt did as well. At the close the FTSE was up 1.03%, the DAX rose 1.66%, the CAC was 2.09% higher and stocks in Milan and Madrid rose 2.04% and 2.83% respectively.
Gold was a big mover over the past 24 hours dropping 3.85% to $1226 oz. and as you can see in the chart below it is now approaching big support at $1157 which is the 61.8% retracement level of the big upmove. If that breaks, IF IF IF, then it is below $700 as a target.
In FX land the US dollar beat up Europe with the euro, pound and Swissy all under pressure. On that basis the US does look better both fundamentally and technically against Europe and overnight the euro fell to 1.2983 and the old trend line you can see on the chart below comes in at 1.2940 and is and will be an important support level. I remain overall bearish euro.
Sterling also looks weak and like it is on its way to 1.50 and below. USD/JPY stalled for a bit and a break of either 96.95 or 98.65 is needed for the next volley in either direction.
On the Aussie the idea that the Prime Minister makes any difference to currency traders is a bit of fun but largely rubbish. Politics in Australia does not normally interfer in markets, at least not since a budgetary Senate impasse back in the 1990’s. But that is not to say the Aussie was passive last night as it looks a lot like some end of financial year hedging might have gone through for spot settlement on Friday the last day of the Financial Year for Australia and it seems that the Spot Desk’s either anticipating this flow or seeing it on their books squeezed the shorts extremely hard driving the Aussie to a high around the London close:
As you can see the Aussie is trending vaguely higher on the hourly charts ever so slighthly – 100 point ranges have been the order of the day the last week or so so maybe 0.9343-0.9445 today.
Data
Kiwi exports and Business Confidence, French Confidence, German Unemployment, UK GDP – watch out GBP – euro sentiment and business climate and then US personal consumption and home sales.
Twitter: Greg McKenna