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Trader thoughts - the long and short of it

Monday’s spirited recovery in risk appetite lost steam, with the bellwether S&P 500 stock index limping into the close with a narrow loss.

Source: Bloomberg

Wall Street rebound loses steam as markets ponder Fed policy: A rethink of Fed policy trends may have been the underlying force driving price action. Tellingly, rates-sensitive technology names led the selloff, shedding over 1.5 percent while the “safer” and more cash-rich utilities space flourished, adding 2.3 percent. If last week’s turmoil was truly an overreaction, the Fed may find greater room to indulge its seemingly growing appetite for tightening. This seemed to elude investors yesterday amid an exuberant reversal of the prior two session’s blockbuster losses.

Fed outlook rethink stokes US Dollar recovery: The greenback suffered yesterday as ebbing trade war jitters revived speculation that a broadening global recovery will push top central banks to play catch-up to the Fed’s hawkish lead, eroding the greenback’s yield advantage. Today’s reevaluation of what a sentiment recovery means for rate hike prospects marked a reversal. That global reserved currency roared higher, adding over 0.5 percent to register its biggest daily gain in three weeks.

Commodities retreat amid USD recovery: The US currency’s resurgence was not difficult to spot in the commodities space. Most raw materials prices are denominated in terms of the benchmark unit, so its advance applied de-facto downward pressure. Gold fell amid fading anti-fiat demand despite a drop in front-end bond yields as losses in the equities space pushed capital flows toward the safety of Treasury bonds. Cycle-sensitive crude oil prices edged down alongside US shares.

Australian stocks follow Wall Street lead: The S&P/ASX 200 continues to take cues from Wall Street, with the index climbing 0.72% after the Dow Jones Industrial Average marked the biggest one-day advance since August 2015 in Monday’s session. All 11 sectors recovered, with Consumer Discretionary (+1.62%) leading the advance, while Financials lagged behind as the sector gained a marginal +0.17%. Increased dialogue between the US and China paired with headlines of a new trade deal for South Korea shored up market sentiment as the threat of a global trade war eased. Today’s retreat in New York trade may be echoed once Australian shares come back online but technical cues hint at thescope for a larger recovery after the ASX snapped last week’s the series of lower highs and lows.

Aussie Dollar threatens 2-year uptrend anew: AUD/USD slumped back to the bottom of a narrow consolidation range carved out since prices hit a three-week low amid last week’s market rout. A break below support in the 0.7660-76 area would open the door for a challenge the bounds the longer-term rising trend in play since January 2016, now at 0.7608. A subsequent breach of that barrier would mark substantial regime change. Immediate resistance lines up at 0.7785, the March 22 swing high.

US consumer confidence cooled in March: An unexpected drop in US consumer confidence seemed to pass by unnoticed by the markets. Indeed, the data crossed the wires long after sentiment trends flipped back to “risk-off” mode. The March edition of the Conference Board’s headline sentiment gauge slipped to 127.7 after hitting an eight-year high in the prior month. Economists pencilled in a further gain ahead of the release. Perhaps most ominously, much of the disappointment came from the forward-looking component of the confidence index’s underlying survey. Respondents turned more pessimistic about business conditions, employment prospects and incomes in the next six months.

Fed’s Bostic warns rate hikes may accelerate: Atlanta Fed President Raphael Bostic told the Wall Street Journal that on-coming fiscal stimulus from tax cuts and an increase in government spending might lead to faster tightening next year. That this comes from one of the more cautious members of the rate-setting FOMC committee seems telling, reinforcing the perception that the baseline median view among policymakers is becoming more hawkish.

Market Data:

SPI futures moved 41.84 or 0.72% to 5832.3.

AUD/USD moved -0.007 or -0.9% to 0.7678.

On Wallstreet: Dow Jones -1.63%, S&P 500 -1.96%, Nasdaq -3.18%.

In New York: BHP -1.58%, Rio -1.42%.

In Europe: Stoxx 50 1.17%, FTSE 100 1.62%, CAC 40 0.98%, DAX 30 1.56%.

Spot Gold moved -0.69% to US$1344.15 an ounce.

Brent Crude moved -0.77% to US$69.58 a barrel.

US Crude Oil moved -1.24% to US$64.74 a barrel.

Iron Ore moved -1.8% to CNY435.5 a tonne, SGX Iron Ore moved 0.03% to US$69.91 a tonne.

LME Allumnium moved 0.07% to US$2052 a tonne.

LME Copper moved -0.87% to US$6602 a tonne.

10-Year Bond Yield: US 2.77%, Germany 0.5%, Australia 2.65%.


Written by: Ilya Spivak and David Song, Market Strategists, DailyFX

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