We’ve seen flat finish to the S&P 500, but there were some interesting market moves to put on the radar. Firstly, we should consider that the S&P futures were down 0.2% at 16:00 (the close of the ASX 200 cash session), so having moved modestly higher it’s no surprise to see our call for the Australian equity market now above 5400.
The key level to watch will be the 27 May high of 5427, so it will be interesting to see if the bulls can push the index into this prior high. The ASX 200 has rallied for the last five consecutive days, putting on close to 5% in the process and we have seen only one occasion in 2016 where the index has rallied for six days in a row and that was in early March.
The balance of probability therefore suggests buying on the sixth day of gains is probably not the best strategy (from a risk reward perspective) and one should perhaps wait for a slight pullback, although in December the market did rally for nine consecutive days.
If one is to focus on the market internals we can see good participation in the recent rally, with the percentage of companies above their 10-day moving average increasing from 55% to 84%. The materials sector looks like a thing of beauty right now (see below chart) and the 7.7% rally in the last five sessions has taken the materials sub-index trading above its 50-, 100- and 200-day average.
Sellers will be more prominent in this sector today though given the collapse in oil prices overnight, on higher gasoline inventories and small losses in iron ore. BHP Billiton Ltd (AX:BHP)’s ADR if we use as a proxy for the space is 1.3% lower.
The focal point will likely be the FX and rates markets today though with traders adjusting last minute positioning ahead of the Bank of England meeting at 21:00 AEST, with the swaps market pricing the probability of a cut at 81%. On the political front all the focus has been on the construction of Theresa May’s Conservative cabinet.
It seems clear that the markets feel pretty comfortable with May at the helm, in what is going to be a very ‘interesting’ 12 months for the UK economy and one feels that she is the best person to guide through this tough period. However, the appointment of Boris Johnson as Foreign Secretary has been met with a strong degree of scepticism and one of the reasons we have seen renewed GBP selling in my opinion.
Philip Hammond has been promoted from Secretary of State to replace George Osborne as chancellor and he will have a huge task given the UK’s 7% fiscal deficit. David Davis has taken position as the aptly named Brexit Secretary.
In Australia we get the June employment print with the market expecting 10,000 jobs to be created and the economists calling for a range of +20,000 to -30,000 jobs. The 12 month average for total job creation is +19,600, with an average of 4200 full-time jobs created monthly over the same time.
Expect the AUD to be sensitive to this release given the interest rate market is so finely balanced for an August cut. To put some perspective on the release it is one of three key influences that could dictate an August cut, with the others being the Q2 CPI print (27 July) and financial market volatility. Good numbers today should see AUD/USD find a firm footing above 76c, with GBP/AUD eyeing a re-test of the 11 July low of a$1.7045.
Japan looks set for slightly higher open, despite USD/JPY sitting nicely in the middle of the sessions ¥104.88 to ¥103.91 range. USD/JPY is a tough one, but my trading bias is to sell rallies in the pair and the obvious area to fade the move into is ¥105.90 and just below strong horizontal resistance.
On the stock side we have seen some good flow on Yum! Brands (NYSE:YUM) in the US after-hours session, with the stock up 4.5% at the time of writing. The focus though is on JPMorgan Chase & Co (NYSE:JPM), as they will have a clear read through into other banking stocks. The market expects Q2 EPS of $1.43 or $24.5 billion revenue, but it will be interest from a more global perceptive to hear Jamie Dimon’s comments on plans for ‘Brexit’.