Macro Morning

See the latest Australian dollar analysis here:

Macro Morning

By Chris Becker 

Friday night saw a wobbly finish to stock markets in Europe and the US after an equally mixed session here locally in Asia. German inflation was flat as expected, but US inflation picked up slightly, although neither print really upset currency markets. The latest oil rig count saw oil prices contained with Brent futures remaining under $40USD per barrel while Bitcoin managed to just finish above the $10,000USD mark. Whether or not the lack of confidence on Wall Street translates into further falls on the open here locally as the trading week gets underway is uncertain, with SPI futures dead flat.

Looking at share markets in Asia from Friday’s session where Chinese stocks were flat through the day but were bought solidly in the afternoon, with both the Shanghai Composite and Hang Seng Index about 0.8%, the latter finishing at 24503 points.  This one off move arrested the dip that had been threatening  the August lows at 24000 points as daily momentum pushed into the oversold level. It’s still nowhere near out of the water yet as this support level must hold:

Japanese stock markets had similar performance with the Nikkei 225 rising nearly 0.8% to 23406 points. Futures are suggesting a possible retest of resistance and previous weekly highs as daily momentum picks up and with little impediment from a lower Yen. Watch for a new daily session close above the high moving average:

The ASX200 was the odd one out in a swift selloff, closing 0.8% lower to 5859 points, making a new two month low in the process as the 6000 point level becomes a distant memory. SPI futures are dead flat, up about 4 points in line with the mixed finish on Wall Street and traders are probably hoping for not much action on the open this morning.  Daily trailing ATR support at the mid 5800 point level has been broken twice now here, with daily momentum definitely negative now, but strong buying support is evident at the 5800 point level:

European markets were all over the place with the FTSE gaining nearly 0.5% in the wake of a lower Pound Sterling, while the latest German inflation data kept the German DAX equally flat while peripheral markets fell sharply. The DAX closed out the week at 13202 points as the daily chart continues to show support at the 12900 point level as this uptrend channel remains intact with daily momentum positive:

Wall Street is really starting to look interesting with the potential for a proper correction rising with each session. The NASDAQ put in another negative session, closing 0.6% lower while the S&P500 was able to finish dead flat at 3340 points. The daily chart shows a potential rout if the 3300 point support level is broken with daily momentum now negative and dropping faster:

Nasdaq has a similar, even worse chart that could spell more trouble if the magical 11,000 point level is broken:

Currency markets moved back into calm mode despite the twin inflation prints with Euro finishing the week basically where it started at the mid 1.18 level but not before it had a lovely 200 pips range around the ECB decision. It seems this has had no result in overall volatility with the medium term remaining bearish as USD is still king:

The USDJPY pair also went nowhere to finish the week just above the 106 level and still unable to make a new intraweek session high, remaining below trailing ATR resistance. This confirms the bearish overall position, but watch for a potential breakout above the 106.40 level:

The Australian dollar was a little more volatility but it too had an uneventful finish to the week, also ending where it started at just below the 73 level. Conversely, there is a potential bottoming pattern forming here so watch for the 73 handle to come under pressure this week, although I note there’s been several fake breakouts above that level already:

Oil futures remain in bearish mode, with Brent futures still below the $40USD level as volatility tightens up around this level to make a new weekly and monthly low. There are almost no buyers here so I can see a potential selloff further below here even though momentum is extremely oversold:

Gold continued to defy the strong USD and almost made a new daily high, but fell back alongside the other undollars and settled once again at just below the $1940USD per ounce level. This remains just a swing play from the oversold nature of the previous selloff but still requires defense here at the $1940USD per ounce level and then another surge above trailing daily resistance at $1950 or gold will continue to slide sideways:

Silver also remains poised here on the daily chart with a small tick higher towards the $27USD per ounce level, as it too bounces off weekly support. There is still significant resistance to overcome at the $28.30 level, but overall the medium term picture still looks promising, but watch that trendline carefully:

 

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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Comments

  1. Top of the morning to one and all.

    Interesting months ahead as the fiscal cliff becomes reality and those locked down lose patience. Long, hot (and painful) summer ahead?

    • Yeah, that graph from CBA in the Jason Murphy extract explains a hell of a lot. If you’re not getting any of these sweet, sweet LNP Greatest Economic Managers In History payments you’re really feeling quite ripped off about now. Talk about misallocation of resources; where is the productivity plan in all this?

      You can see the LNP getting addicted to this sort of spending given they’re getting loved for it (surprise surprise, hey?) Meanwhile the distorted Aussie economy is being bent and twisted in all sorts of new and perverse shapes and positions.

      And what if we have an external shock? Where are the moves to mitigate that sort of even which is higher now than it’s been since the mining downturn?

      Put your helmets on, make sure the popcorn machine is loaded, and prepare for anything as we enter the cank-kicking grand final. Everyone loves a good grand final!!!

      • I haven’t had a penny of gummint coin come my way, while I get to work harder than I have in my life as my income is hammered by pay freezes, bonus cancellation etc and my plans to holiday and visit family overseas over Christmas are obviously hosed.

        It might all sound a bit first world, and at least I still have a job, but I’m feeling more than a little displeased.

        • Yup, I hear you. While I’m pretty good at removing my personal situation from appreciating the broader story, to watch so much effort put into preserving the Pre-Pandemic Ponzi Australia (PPPA) is enough to make my blood boil. If the PPPA was a racehorse they’d shoot it (and like Sad Ken, the jockey as well). There is no end in sight, either, which is the really bitter pill to swallow.

      • Goldstandard1MEMBER

        Good call. There are a lot of people thinking we have settled into a new normal (thanks gov’na) but one more big shock externally and the new normal will explode with no more dry powder. We are right on the edge at the moment. Right on it.

        My opinion is the sharemarket is propping a lot of ppl up in wallet and spirit

        • My opinion is the sharemarket is propping a lot of ppl up in wallet and spirit

          If that’s the case then we should be short the XJO now as that is the worst of all reasons for people to be buying stocks.

          PS: It also means nerves and balls of steel as we’re dealing with completely irrational price drivers. Smashing.

      • There is no productivity plan — if anything, handouts are likely to cause a deterioration in productivity because it removes any incentive to become more productive. Talk about ‘improving productivity’ is BS as long as bailouts and stimulus continue.

        As the old saying goes: actions speak louder than words.

        • Given they’re actively stopping insolvent businesses from going into administration just goes to show you how distorted it is. Be much better off letting these businesses fail and then looking after the families affected (both owners and employees) than letting mobs trade insolvent as the outcome will be the same for the vast majority given the economic environment they’ll be returning to. Completely daft.

          • The truth of it is, the Gubbermint is not interested in doing what’s right — their only objective is to avoid having thousands of businesses go to the wall on their watch and tens of thousands of people evicted from their homes on their watch. Those miserable picture on the news at night – people in distress, current affairs programs full of misery.

            Politics is all that matters – “Not on my watch”

  2. How do you drive inflation with deflationary practices? The government.

    We’ll end up being a China where the next 20 years is just fake numbers and distorted markets and authoritarian leadership…

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