Macro Morning: Fed hits stocks, Australian dollar

morning1211

Rightyo – I am loving the Fed at the moment and their experiment with absolute transparency and the fact that they are trying so hard to let the market know what they are doing and even when they might do it.

Obviously the above has to come with a personal hubris alert lest I blow myself and my dear readers up but I truly think the Fed is doing a great job and I am now convinced we are but a couple of months away from the taper. This notion was reinforced by comments on Friday where the Fed rounded back to the key point of this communication strategy which is of course to get the market ready for the taper but all the while explaining that they still have the flexibility to increase purchases if needed and they are not raising rates anytime soon.

Anyway on Friday the USD caught a very nice bid and stocks were lower after comments from Fed Governor Jeremy Stein who said:

The best approach is for the committee to be clear that in making a decision in, say, September, it will give primary weight to the large stock of news that has accumulated since the inception of the program and will not be unduly influenced by whatever data releases arrive in the few weeks before the meeting…

He also said that if the economy weakened the pace of the taper will be slowed or stopped but he gave every impression that we are but two months or so away from the taper. Fed Governor Lacker also echoed these comments

At the close the Dow was down 115 points or 0.76%, the S&P 500 fell 0.45% to 1606 and the Nasdaq managed to creep just back into the black.

s&p 500, spx, s&p 500 chart, daily

In terms of the price action on my VantageFX MT4 chart you can see that the price of the S&P is back in what seems to be this pivotal mid 1590’s region. I’m happy to be short S&P now.

One reason I am is that I believe that the lack of inflation around the globe at the moment even with all of the money printing speaks loudly of a lack of underlying demand in the global economy and thus I expect over time and given we are less than 5% off all time highs stocks to retrace lower under the weight of poor earnings results.


Indeed an interesting article I saw on Business Insider this morning about negative pre-announcements highlights the risks which quotes a Citibank analayst saying that it’s just the Fed that might drive stocks lower (we certainly think that) but also earnings. Tobias Levkovich says:

“In this respect, we have been a tad shocked by the surge in negative-to-positive preannouncement trends that make 2009’s surge appear less worrisome in retrospect. Upward earnings guidance has dipped as well and there has been little consternation or discussion about it.”
negative guidance

The picture from the article, shows the downward trend so as we approach Q2 earnings season in a month it might be worth keeping an eye on this. I am targeting a move toward 1400 in S&P terms.

Turning quickly to Europe and it was a sea of red with the FTSE down 0.45%, the DAX down 0.40%, the CAC down 0.62%, Milanese stocks down 1.24% and stocks in Madrid fell 1.04%.

Turning to FX and most specifically the Aussie which has fallen out of bed again on Friday night getting smashed across the board and making a new low for this run against the USD and falling all the way back to 1.1788 against the Kiwi for goodness sake – gee whiz. I said last week I thought there was some end of financial year shenanigans which drove the Aussie up to the high last Wednesday night and I’ll note once again that since London exit and the physical buying clearly got its June 28 spot date the Aussie has been falling:

aud, audusd, australian dollar, australian dollar price quote, audusd 1 weekly

As readers know my target has been 0.8916 and it remains the focus. I squared up some shorts from earlier in the week on Friday night – a little too early it must be said and even though it is a huge week for data around the world with catalysts for moves coming from all directions my sense is that I and others will be looking for rallies to sell in the AUDUSD and other Aussie pairs.

Elsewhere the euro fell after the aggressive comments from the Fed (see below) and closed at 1.30064 looking wobbly and I’m targeting lower once again. Equally even though GBP is back at 1.52 it too looks biased back to 1.50 and below and USDJPY is on its way for a retest of 99.98

Does any other commodity besides gold really matter at the moment? Of course but precious metals have got all of the focus recently, particularly given that gold traded down below $1200 a couple of times in late week trade and again on Friday night before getting chased back to close at $1234 up about 1% on the day. On the 1 and 4 hour charts gold looks like it has a tradeable bottom from last week and I’ll have a full piece out later today on this.

copper, copper price chart, weekly

In other commodities copper is looking wobbly at just $3.05 lb and it traded back to the two year low of 2.98 on Friday night. This is the key level to watch for copper as a break could see it at $2.67 lb and if it slips watch commodity currencies especially the AUD.

Data 

It is a huge week ending in non-farm payrolls Friday night in the US but the week kicks off with the AiG Performance of Manufacturing Index in Australia, TD Inflation index and RBA commodity prices together with Japanese Tankan Survey, the NBS and HSBC Chinese manufacturing PMI’s before a raft of Markit Manufacturing PMI’s in Europe and the UK along with Eurozone CPI. In the America’s we have the Brazilian HSBC PMI, Markit US manufacturing PMI and the original and still the best PMI – the ISM.

Twitter: Greg McKenna

 

Comments

  1. migtronixMEMBER

    The moves in silver just this morning have been epic! 50c move up and down in ~2 hours? Lots of money changed hands there…

    Looking forward to your PMs peice