You’ll see in the body of today’s note that bonds and oil seem to be telling a different story to stocks. That doesn’t mean sell per se. but it is a handbrake on the rally as we’ve seen the past couple of days.
So at the close besides the S&P 500’s 0.2% fall we saw the Dow down 0.1% to 25,390, the Nasdaq 100 was 0.4% lower at 6,997, while the Russell 200 dipped 0.15% to 1,518. Small bikkies I know and far from the end of the world. But just watch this space – as momentum slows the chance of a reversal grows.
European stocks were lower as well. The FTSE consolidated its break closing essentially unchanged at 7,173, the DAX was 0.4% lower on more weak German data with factory orders for December collapsing 1.6% against expectations of a 0.3% increase. They are now down 7.4% year on year. The CAC dipped just 0.1% in Paris.
In Australia though we found 20 points of gains yesterday and PSI traders added another 18 points overnight. We are nearing some decent overhead resistance though as you can see in the chart below.
On forex markets the Aussie and Aussie crosses were the standout after RBA governor Lowe put rate cuts on the table. So the AUDUSD is off 1.63% now at 0.7115, the AUDJPY is off 1.6% and we’ve even lost ground against the Kiwi which is at 0.6826, down 0.97% after being caught in the Aussie’s tractor beam.
Elsewhere the Pound did reasonably well given Donald Tusk vitriol – its at 1.2934 down just a smidge. Euro is down 0.44% after the data at 1.1363 and USDJPy is largely unchanged at 109.96. USDCAD is up again at 1.3206 for a 0.6% gain while the 0.3% lift in USDSGD confirms the USD breakout.
On commodity markets gold has dipped 0.66% in the wake of USD strength and is back at $1,306.20. Silver is down 1.2% at $15.65 but copper remains bid with a gain of 0.6% to 2.834 – it did reverse off the range top though. Bitcoin is falling and is near $3,300 while WTI and Brent are both a little higher and not ready yet to rollover it seems. WTI is up 0.6% to $53.98 while Brent lifted 1% to $62.63.
US 10’s are at 2.70% after a good auction Wednesday. The 2’s are at 2.53% and the curve is at 1.80 points.
On the day today we have Kiwi employment, unemployment and labour cost data around the time you’ll be getting this note. Then in Australia we have the AiGroups performance of construction index which – because of concerns about housing and Governor Lowe’s speech yesterday – will garner more interest than normal. The last print was 42.6 so it’s already in a parlous state and you’d hope not falling further.
Japan release foreign reserves data and coincident and leading index data, its still a holiday in China, and then we get German industrial production French trade, and Italian retail trade – might be an ugly smorgasbord. Mrs may is meeting the EU and of course we have the BoE meeting which will do and say very little I would think so as not to startle the horses. Unless the BoE decides British Pollies need a damn good kick in the tail 🙂
In the US we hear from Fed vice Chair Rich Clarida, we get jobless claims and consumer credit. And Fed Chair Powell si on the docket as well.
On trade. Is a deal possible?
I genuinely wonder if a trade deal is possible given the necessity to break a number of China-US battles away from each other in order to get a deal. Here’s my current thinking.
There is a clear assumption that President Trump will prevail with a trade deal. Indeed yesterday Reuters reported “US’ Mnuchin, Lighthizer to hold talks next week in China: sources”. And the only answer to that is which US face is going to present in China – Mnuchin ‘want to make a deal’, or Lighthizer, ‘you folks are cheats’?
So of course I tweeted in response to the story “No doubt they’ll hold talks between themselves – or play rock-scissors-paper – to see who wins Mnuchin conciliation or Lighthizer hard ball”.
To this end, markets have assimilated a deal – they seem to believe that President Trump wants a deal and one will be forthcoming. I have written something similar though questioning the path to which the US can detach the hegemonic and technological battle from Soybeans.
But as Bloomberg points out yesterday President Trump said in his SoTU speech that a trade deal must include structural change in China.
“I have great respect for President Xi, and we are now working on a new trade deal with China,” the President before adding “it must include real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs”.
Hands up if you think that will happen…Beulah, Beaulah???? Indeed, that’s Lighthizer, not Mnuchin.
So I offer you this from the twitter feed of Christopher Balding, Associate Professor
HSBC School of Business, Peking University, Shenzhen. If you don’t follow him you must – here’s the link.
And when you see stories like this where the Alcoa CEO says the Aluminium market is being hurt by the “sucking sound” of production being dragged toward China because of state subsidies you have to wonder if a deal can get done.
Roy Harvey told Bloomberg, “that playing field simply isn’t level. And that in turn means that you’re getting this sucking sound of productive capacity, and now semi-fabricated products, into China. You’re pulling more and more of that primary demand back into China, and it’s only a gain for the Chinese”.
I can imagine the White House PA system “Messrs Lighthizer and Navarro to the Oval Office please, Mr Mnuchin can wait outside”. 🙂
Politically it might actually be better for the President to prosecute this argument a little longer. Particularly as the Democrats move further to the left. That’s something Fox Business’ Charlie Gasparino said Wall Street Democrats aren’t and can’t support.
Brexiteers – where is your place in hell.
We have Irish Republicans telling Mrs May that a no-deal Brexit means a referendum on Union between the North and the South, we have the DUP still saying it won’t stand for the Irish backstop, we have the Irish Prime Minister saying we’ll never need it but because Westminster is so dysfunctional we still need to have it in writing AND then we have EU President Donald Tusk going straight for the jugular.
He said once again the agreement is not up for negotiation but added, “I’ve been wondering what that special place in hell looks like, for those who promoted Brexit, without even a sketch of a plan how to carry it out safely”.
Yep. Too bad he wasn’t this aggressive a while back – British Pollies may have woken up to reality and sorted themselves out.,
Now, for Mrs May to pull a rabbit out of the hat with her meeting at the EU Thursday.
Oh, if you are interested in seeing Tusk say the words, click on the caption.
Are bonds and oil sending stocks a message?
I’ll just leave this chart here as a reference.
But I do wonder if the stocks recovery can continue while oil price rises stall and bond rates fall. Now of course I still think the 2.55/2.82% zone for the 10’s is the Goldilocks zone where rates will not cruel the rally. And it is equally true that when a crisis/market funk passes assets that were correlating to 1 diverge again. That’s actually healthy.
US 10’s, S&P 500, and WTI oil Daily
But when you look at the chart above you have to wonder. Something for us to keep our eye on.
S&P 500 chart.