Markets Morning - Tech climbs off the mat, Barnier boosts Sterling and Euro, EM ex-China stabilises
Market News & Blog - Greg McKenna | 11 Sep 2018
Welcome to my daily Markets Musings.
You’ll see things are different from now on. That’s because the full note was approaching 2,000 words some days and I’m breaking it up into a number of reports on the Axi Blog each day now.
That way traders can subscribe to the Axi Blog easily and then cherry pick the yarns and markets of interest
Feedback always welcome
Market Summary (7.58am Tuesday September 11)
Can I be so bold as to say nothing material happened except Michel Barnier continued to insert volatility into currency markets with his back and forth over the prospects of a Brexit deal soon?
I need to say that because, in a macro sense, there is little to take away from the past 24 hours action – except perhaps EM is trying to settle.
Not yet in China though where it was another horror day on its stock markets yesterday with the Hang Seng, Shanghai Comp, and CSI 300 all down more than 1.2%. But while there were still some tensions in emerging markets with the Indian Rupee hitting a new low against the USD, while the Turkish lira and Argentine peso lost ground once more stocks in Europe and the US were more hopeful.
The Nasdaq snapped it’s recent losing streak but the 0.23% rise for the 100 index to 7,447 wasn’t quite able to get price back above the trendline broken Friday. Likewise, the S&P was 0.2% higher to 2,877 - respecting the trendline it approached with last weeks falls. The Dow dipped though, down 0.23% at 25,857.
Europe had a better day of it as well with the DAX, CAC, and FTSE 100 either flat to up 0.2%. But Italy is the story again and this time in a good way. The Italian/German 10 year bond spread continues to rally and the FTSEMIB rose 2.3% as it has become apparent for all the rhetoric the government in Rome is trying to place nice with EU rules while still fulfilling its mandate to the people. No mean feat if they can pull it off.
On forex markets EU negotiator Barnier continues to add volatility to Sterling and the Euro with his back and forth comments on the outlook for a deal. Last night he was positive which gave both currencies a lift against the USD and crosses. GBPUSD is up 0.83% to 1.3028 while Euro is at 1.1595 for a gain of 0.4%. USDJPY is higher at 111.17.
On the commodity bloc the US was stronger. The Aussie dollar has underperformed the Euro and copper over recent days and sits at 0.7112 for a gain of 0.1%. Obviously the Aussie has been hosed against the Pound and Euro which have made fresh 2 and 9 year closing highs respectively overnight. The Kiwi lost 0.2% to 0.6522 while the CAD is barely change at 1.3161.
On commodity markets there was divergence between Brent and WTI with the former up 0.7% to $77.37 while the later fell 0.3% to $67.54 erasing earlier gains after some conflicting inventory data from Genscape and Bloomberg. It highlights the worries traders have about the trade war and impact on global oil demand. One bright spot though, US exports to South Korea hit a new high data overnight showed. Copper rose 0.23% to $2.6095 in HGc1 terms while gold is becalmed at $1195.
The US curve flattened a little last night with 2 year Treasuries at 2.715% and the 10’s at 2.937%. Rounded we’ve got the curve at 22 points. Bitcoin is down 2.2% at $6,274 as other Crypto’s come under pressure once again.
Looking at the day ahead the NAB business survey is the highlight for me because it will help give a steer as to whether worries about households are likely to impact growth materially. Tonight it’s UK unemployment, EU employment and ZEW economic sentiment survey while Germany has its version of the survey out as well. In the US it’s JOLTS and wholesale inventories.
Macro Stuff that affects everyone and everything - either today or eventually
- Brexit messiness continues. Yesterday evening I saw some headlines flash past that British PM May is to hold a Cabinet meeting later this week to discuss what would happen in the event of a no-deal Brexit. The spokesman for the PM said it’s not the favoured or expected option but contingencies need to be covered (my paraphrasing). So I was a little surprised to see Sterling so strong this morning. Until I read that Michel Barnier had maneuvered his position once again.
- As I reported yesterday, it’s as if the negotiations were becoming intractable given Barnier said the Chequers deal is a non-starter but the UK government says it’s the plan the EU must respond to. And what’s interesting is that even though Sterling shot higher Reuters has sort to clarify what he actually said. Reuters says the British embassy in Slovenia said from the forum in Bled that Barnier said “realistically we can expect to reach the Brexit agreement in the next 6-8 weeks”. But Reuters says all Barnier did was “repeat a standard recent line that if negotiators — meaning particularly Prime Minister Theresa May’s government — compromise further, then it would be possible to complete divorce terms on schedule,” (quoting the copy in the piece). And Reuters re-characterisation of the actual comment means Barnier may not have changed his tune at all. I’d urge you to read that article, it’s enlightening.
- And speaking of the UK quickly, data overnight showed growth accelerated to the fastest pace in almost a year. Go figure.
- The EM crisis is probably not over. I say that because it’s clear to me the Fed will keep tightening. But if there was ever a good sign that we might be in for a bit of a hiatus or maybe hit peak pessimism this tweet from the Wall Street Journal’s Mike Bird has to encapsulate it. An EM exchange rate crisis signal called “Damocles” as in sword over your head…..gee whiz.
- And speaking of hiatus I read a Sunday summary from UniCredit over the weekend which highlighted that they believed the recent Italian selloff in bonds was overdone and that while foreigners rushed for the exits Italian banks loaded up. Here’s the latest update on the Italian/German bond spread where you can see the sea change at the moment. When you look at what the Italain government is saying, the leaders of the coalition partners in particular, it does seem they are trying to balance election promises with EU commitments. Time will tell how that plays out.
- Chinese inflation was out yesterday with CPI rising more than expected to 2.3% year on year which is the highest pace of price appreciation for 6 months. Producer prices were also out and showed a moderation to 4.1% from the previous month’s 4.6%. Neither really have an impact on markets yesterday – indeed stocks were falling again regardless and the Yuan was under pressure once more. But it will be worth watching PPI going forward for any signs of waning demand and overall global price pressures.
- And speaking of China, the boss of brokerage house CLSA told CNBC that worries about the US/China trade war are overdone because, “it takes a long time to move trade flows. China has industries that are going to be there for a long time, they're not easily movable”. True, the companies could take a margin hit just as easily as they can raise prices, or if they can’t raise prices. If they can raise prices though it will send a strong signal about the health of the US economy.
- Kim jong-Un has requested another meeting with President Trump in a letter which was handed to the South Koreans, then onto Secretary Of State Mike Pompeo and then to the President.
Have a great day's trading.
Chief Market Strategist
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