Macro Morning

By Chris Becker 

With the trade war truce in place, equity markets gapped higher overnight with US stocks hitting a record high as traders piled all in, despite the worrying signs across the globe as manufacturing rolls over. The USD in particular soared higher against everything, while interest rates were relatively quiet as the 10 year Treasury remained slightly above the 2% yield level.

All eyes today will be on the RBA as it meets for July, with the chance of another rate cut on the cards, despite the central bank’s admittance that it won’t really help things….

Looking at the action in Asia yesterday after the G20, where the Shanghai Composite lifted over 2.2% to close well above the 3000 point barrier that held it back all of last week while the Hang Seng Index was closed for its national holiday. On the reopen today, traders will be watching the clustering of recent session highs at the 28500 point level for signs of a breakout – could be as violent as the protests…..

Japanese share markets also bounced past the 2% barrier with the Nikkei 225 closing 2% higher to start the week on a much firmer note at 21729 points.  A lot of the positive mood is due to a selloff in Yen with futures suggesting more upside action today with the potential target here on the breakout back at the April highs near 22500 points:

The ASX200 was the odd one out, only lifting about 0.4% despite a much weaker Australian dollar, closing at 6648 points. SPI futures are up 20 points or 0.3% so we should see another new high here today, but there maybe some hesitation around the RBA meeting this afternoon, so I’m watching for a potential inversion below 6550:

European stocks ran out the gate hard, with the German DAX leading the way again, finishing nearly 1% higher to 12501 points. This makes a new weekly and monthly high, pushing aside any of the remaining bears with the daily chart showing how price has moved past the previous April high. Is it sustainable however, with momentum through the roof – watch for support at the former daily highs to remain firm near 12400 points:

On Wall Street it was the same tune, different song with the Dow lifting nearly half a percent while the NASDAQ rose over 0.7%, the broader S&P500 finished 0.75% higher to 2964 points. The daily chart also shows price getting back above the April highs, completing this filled rally and ready to take on the 3000 point level – never mind the fundamentals:

Currency markets were all about the USD returning to the throne with the Euro the casualty of a major selloff, falling below week long support at the 1.13 handle. This was a swift selloff and harbinger of more strength ahead for King Dollar – I’m watching the 1.1250 level for signs of a follow through, back down to the monthly low at the 1.11 level:

With risk sentiment super positive, and a stronger USD, the USDJPY pair has come back to life in full, leaping up to the mid 108’s overnight. Interestingly the cluster of highs are somewhat near the dominant weekly downtrend line and still below the June highs, so this rally could be over before it even starts:

The Australian dollar was also pushed off the cliff, back below the 70 handle in a USD strength move, not just in anticipation of today’s RBA meeting. While the previous rally had a lot of macro analysts shaking their head, we should see a reversion to mean here below the 70 cent level if the RBA language remains dovish:

Oil prices were relatively stable during last night’s OPEC meeting with production cuts extended, as the WTI contract lifted just over 1% higher back to the $59USD per barrel level. There is still staunch resistance at the $60 level to beat next, and while daily momentum is positive overall this commodity is still in the thrall of external events:

Finally to gold, which sold off spectacularly yesterday after its crowded topping action on Friday, falling nearly 2% to the $1384USD per ounce level. This takes it well below the $1400 psyschological barrier, but not long term support at the $1340 level. I’ve said repeatedly that a further retracement down here to re-engage and take some steam out of the price is necessary to have any change of beating the multi-year bearish market:

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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