Macro Morning

By Chris Becker 

A much firmer response from the risk on crowd overnight as US stocks pushed to new highs while US interest rates plumbed new lows. Sentiment was helped on bond markets at least by nominations to the ECB and Fed, with Christine Lagarde to become the next ECB president. Treasury yields dropped even further as the US trade balance cratered again despite Trump’s trade war strategy of throwing tariffs at everything to shore up the hole.

Looking at the action in Asia yesterday where the Shanghai Composite fell over 1% to close just above the 3000 point barrier, barely holding on to its previous bounce-back. The Hang Seng Index slipped slightly to 28855 points, unable to make good on the previous daily high as expected, but still holding on above the breakout area at 28500 or so. Momentum remains positive and with a good lead overnight we should see a better advance today:

Japanese share markets fell as the Yen firmed again throughout the session, with the Nikkei 225 closing 0.6% lower to 21638 points, now with three sessions in a row with no new highs.  A slightly weaker Yen overnight has seen futures pull up however suggesting a little better action today with the potential target still the April highs near 22500 points, although I’m mindful that price remains significantly overbought:

The ASX200 was the standout by rallying nearly 0.5% higher to 6685 points with banks continuing their post-RBA retracement while industrials and property giants lifted the rest of the market, in particular Woolworths.  SPI futures are up over 22 points, so the race back to the 2007 highs continues with the daily chart well supported here at the low moving average and ratching ATR support:

European stocks reacted positively to the Lagarde nomination with peripheral bourses doing the best, the FTSE and German DAX also having solid finishes, the latter up 0.7% to 12616 points. While momentum is still nominally overbought, price is signalling further highs but a small retracement back to the high moving average would be more healthy here:

On Wall Street it was very positive as well, despite some mixed messages from factory orders, a ballooning trade deficit and weaker employment stats. The S&P500 finished 0.7% higher at 2997, almost up through that magical 3000 point level with the better momentum and solid price action indicating further rises ahead, despite the gloomy fundamentals:

Currency markets had to absorb another Trump senseless gaffe about currency manipulation, but in Euro-land it was pretty quiet with a very slow melt below the 1.13 handle. Bulls maybe drawing a long bow by drawing a potential bullish falling wedge pattern on the hourly chart but I would contend this is maneuvering before Friday’s NFP and not much else:

The USDJPY pair bounced a little off the temporary low at the 107.60 level but is looking weak already going into the Tokyo open this morning. Trailing support at the mid 107s could be taken out next, but momentum is not yet negative enough to warrant it:

The Australian dollar is surging higher because of the potential of another rate cut by the Fed, despite this week’s rate cut by the RBA, lifting through the 70 handle and exceeding the previous level reached late last week. I’ve been wrong about weakness here for sometime, as the four hourly chart looks quite bullish, with the low moving average providing great intra-session Uncle points to add to longs:

Oil prices are trying in vain to comeback after the OPEC induced selloff previously, with the WTI contract rising nearly 2% to get back above the $57USD per barrel level. It looks like staunch resistance at the $60 level remains too hard to beat and I’m watching for a follow through with another red candle close below the low moving average:

Finally to gold, which made another attempt overnight to make another new daily high and beat the long running downtrend line overhead. The shiny metal eventually closed where it started at the $1418USD per ounce level, not quite matching the previous high. Looks like the dip is over but I’m worried about the long selling tails above these identical daily highs that correspond to the yearly downtrend line above:

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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