Macro Morning

By Chris Becker 

US/China trade tensions are spiking again, this time on the hullabaloo around Huawei with tech stocks sinking overnight, dragging down industrials and taking away most of any remaining risk confidence. Interest rate and currency markets were more benign but the USD remains firm across all undollars, with the Australian dollar rolling over post its election highs.

Yesterday saw Asian stock markets start the rollover process with the Shanghai Composite starting the week poorly, staying below 2900 points and down nearly 1% before closing off 0.4% to 2870 points. In Hong Kong, the Hang Seng Index hasn’t done much better, down 0.6% or so to 27787 points as the rollover to a new daily low seems complete for this dead cat bounce. Momentum is not yet heavily oversold and does support a move lower from here:

Japanese share markets  advanced on a good Q1 GDP print, with the Nikkei 225 closing 0.25% higher to 21305 points helped along by a weaker Yen. Futures however are pointing to retreat this morning even as Yen remained weakened overnight, so while price remains well above the February/March lows but I’m still wary of this turning into another dead cat bounce:

Australian stocks did the best for obvious local issues – the financial sector gaining 5% helping the ASX200 rocket nearly 1.7% higher to close at 6476 points. SPI futures are suggesting a large pullback however, in the region of 40 points or -0.6% due to the falls on Wall Street. As I said yesterday, this upside move is really dependent on a lower Australian dollar as this market is still correlated – somewhat – with others:

European stocks are again in a sea of red, confirming the dead cat bounce despite lower domestic currency support with the German DAX falling over 1.6% to 12041 points. This almost takes it back to key support at the psychologically important 12000 point level although daily momentum has not yet crossed over to negative territory:

Wall Street is looking precarious here with the impact of the Huawei shutout, with Apple dropping 3% and the NASDAQ slumping 1.7% or so, the S&P500 eventually closing 0.7% lower to 2840 points, all indicative of a dead cat bounce with daily momentum still not yet positive. Another low and we’re back down to terminal support at 2800 points:

It’s still all about USD on currency markets with Pound Sterling remaining depressed in the low 1.27s while Euro was steady at its recent new weekly low below the 1.12 handle. The four hourly chart continues to show the bears in charge here, although a nascent falling bullish wedge pattern is stating to form at these low levels, there is little potential for a bounce higher as momentum remains quite negative:

The risk proxy USDJPY pair is still a bit confused here, remaining just above the 110 handle proper after gapping to that level on Monday morning, but without any further advances overnight. This may just be short covering or a continuation of the risk inversion, so I’m watching trailing ATR resistance carefully on the upside and the low moving average at the 109.80 level on the downside:

The Australian dollar was unable to hold on to its Monday morning gap higher in the post election euphoria, falling back to the 69 handle proper as trailing ATR resistance at 69.20 remains strong. I doubt if this can be turned into any kind of relief rally as new resistance at 69.60 (former blue trailing support) is very strong, with the 70 handle a distant memory:

Oil prices continued to firm on the hawks circling Iran with the WTI contract finishing just above the $63USD per barrel level as it starts to follow through above its recent breakout. This move could see the start of a re-engagement of the previous weekly uptrend, with my short term target at the former highs near $66:

Finally to gold, which actually ended the session where it started, confirming its own rollover against a strong USD, after failing recently to punch through the key $1300USD per ounce level. This keeps it near, but not below the previous bottom with $1260 or so the downside target here if broken:

Glossary of Acronyms and Technical Analysis Terms:

ATR: Average True Range – measures the degree of price volatility averaged over a time period

ATR Support/Resistance: a ratcheting mechanism that follows price below/above a trend, that if breached shows above average volatility

CCI:  Commodity Channel Index: a momentum reading that calculates current price away from the statistical mean or “typical” price to indicate overbought (far above the mean) or oversold (far below the mean)

Low/High Moving Average: rolling mean of prices in this case, the low and high for the day/hour which creates a band around the actual price movement

FOMC: Federal Open Market Committee, monthly meeting of Federal Reserve regarding monetary policy (setting interest rates)

BOJ/Abenomics: Bank of Japan, economic policy/direction enacted by PM Shinzo Abe

DOE: US Department of Energy 

Uncle Point: or stop loss point, a level at which you’ve clearly been wrong on your position, so cry uncle and get out!

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