by Pinchas Cohen
Key Events
US stocks opened the week sluggishly, stalling yesterday while awaiting earnings.
Global Affairs
The S&P 500 stalled after registering a record high last week, while other indexes did the same, or have reached their highest levels since the Great Recession. China was the only market that fell hard on concerns of tightening government regulations which could hurt profits. Ironically today, when global equities overall are lower, China’s Shanghai Composite and Hong Kong’s Hang Seng are slightly higher.
After yesterday’s elevated open, European markets closed lower, while Asian stocks ended a six-day advance at their highest point since 2008.
The dollar extended its 8.7 percent decline since January to a 10-month low, as it becomes clearer that the American healthcare reform bill is not going to pass in its current version, and investor confidence in Trump-reflation continues to flounder.
As things stand, the dollar’s trajectory is down. While some analysts still believe inflation will warrant a December rate hike, providing a boost to the dollar, that’s a fourth quarter story.
Safe haven assets returned to being in vogue as Treasuries rose for a third straight day, while the yen and gold climbed.
The Aussie surged to its highest level since May 2015—clearing out a year-and-a-half of consolidation—after yesterday’s release of the Reserve Bank of Australia minutes, which expressed confidence in the economic growth and wages of the country down under. Should this have happened in the US, the greenback would have most likely been sold off on the Fed's delaying of a rate hike and its decision to continue its QE program, just as the RBA did.
The move extends last week's upside breakout of a triangular bottom with target implications of $0.88, a thousand pips, or 12 percent.
The Aussie dollar is getting a boost from iron ore futures which are benefiting from strong Chinese steel mill demand, in confirmation of China's ongoing economic growth. Contracts on iron ore, Australia's top export to the sum of $37.5B annually, are at their highest since May.
The rising Chinese demand for Australian iron ore may be seen as well via the AUD/CNY pair, which is flirting with its March 21 high. Successfully overcoming its resistance suggests another rally, but this particular benchmark is important. The pair will have completed its 6.3 percent return move after breaking out of its downtrend since August 2011.
Though Rio Tinto (NYSE:RIO), one of world’s largest metals and mining companies, lowered its iron ore export forecast, the stock’s price is holding on to its 20 percent gains since June 22nd. Should the price overcome the February 13, shooting star resistance at 47.11, it will have completed a H&S failure, with a minimum upward implication of a 9.00 move to 55.
The price of a barrel of WTI crude extended yesterday’s decline, a bearish engulfing pattern. Yesterday, trading ended with a close beneath last Wednesday’s high wave candle, confirming our analysis that this is the end of its upward correction.
Up Ahead
- U.K. inflation data for June was released today. The results will get extra attention following some recent flip-flopping by Bank of England Governor Mark Carney on the need to raise interest rates.
- The European Central Bank meets Thursday. Bloomberg Intelligence expects no rate change then, nor a hike before 2019. Reuters cited unidentified officials as saying the bank is keen to keep asset purchases open-ended.
- The Bank of Japan is forecast to stand pat at its meeting Thursday.
- Round two of Brexit talks have begun in Brussels.
Market Moves
Currencies and bonds
- The Dollar Spot Index sank 0.4 percent to its weakest since September 8 as of 8:00 a.m. in London.
- The pound and euro were both up 0.4 percent at 1.3099 and 1.1530, respectively.
- The yen climbed 0.4 percent to 112.17 per dollar.
- The kiwi rose 0.6 percent to 73.60 U.S. cents after dropping as much as 0.7%.
- The Aussie soared 1.5 percent to 79.18 U.S. cents, its highest since May 2015.
- 10-year Treasury yields fell one basis point to 2.31 percent after dropping five basis points last week.
Stocks
- The Euro Stoxx 50 opened down 0.3 percent, matching its decline from Monday.
- The FTSE 100 fell 0.3 percent this morning, after gaining 0.4 percent yesterday.
- S&P 500 futures lost 0.1 percent.
- Japan's TOPIX dropped 0.3 percent. It fell as much as 0.9 percent earlier in the day after it was reported some Bank of Japan officials were increasingly concerned about the sustainability of the bank's purchases of exchange-traded funds.
- Hong Kong’s Hang Seng fell 0.1 percent.
- Australia’s S&P/ASX 200 Index slid 1.2 percent.
- China's Shanghai Composite and other mainland China markets erased losses and closed higher.
Commodities
- Gold climbed 0.2 percent to $1,236.34 an ounce.
- WTI crude fell 0.3 percent to $45.87 a barrel following Monday’s 1.1 percent slide. The fall occurred amid concerns that output is growing in the US and from OPEC-member Libya.
- Iron ore futures on the Dalian Commodity Exchange jumped 5.7 percent to 519 yuan per ton, its highest since May 4.