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The big question for traders, which I am sure will be debated today and over the Easter period, is whether President Trump is indirectly talking down the rally in the USD, but he is now having an effect on literally every other asset class.
Trump has stolen the headlines, with China unsurprisingly no longer deemed a currency manipulator (see the CNH rally), but also NATO are 'no longer obsolete'. In an interview with the WSJ he has talked down the USD, effectively using the lack of bids to hit the offer and push USD/JPY markedly lower – Trump the momentum trader!
We have seen this materialise over a number of sessions here, but the safe haven Japanese Yen rally come to abrupt halt, as traders faded the move and locked in profits. This USD last trading at the key 100 level, after falling 0.6% in the last hour of trade has lifted the Australian dollar cross back above 75 handle.
The rally in US indices that began on November 8 has been consolidating sideways since the week beginning March 6, while price consolidation is good and gives the market time to reflect if these levels are justified.
Last night the S&P 500, often referred to as the global benchmark of the US economy, fell below the 50-day moving average, and setting off alarm bells for some trend followers. Good selling has been seen in industrials, financials and materials. Although the move lower in the benchmark indices has raised some alarm bells, recent moves have not traded below the significant support level of 2320 in the S&P 500.
With the current geopolitical events taking place, the global markets have remained resiliently strong, but this may be about to change. Interestingly, the US volatility index (or the ‘VIX’) is now starting to move higher towards the key 16 level as events in North Korea and Syria start to get the attention of China and Russia.
Tonight we will see the start of the US reporting season with Wells Fargo, Citigroup and JP Morgan offering results. The market will be looking for strong earning-per-share-growth north of 10% in this reporting season to justify the current rally.
For our local market today it seems the much talked about target of 6000 points for the ASX 200 is now a bridge too far.
I would expect Australian traders will also take cautionary risk off positioning today, the SPI futures closed down 33 points.
Keep in mind that iron ore was smashed 8.5% on the fixing last night, with iron ore and steel futures falling 1.4% and 0.8% respectively. Oil has finally found sellers, with US crude -1%. BHP is eyeing an open 4% lower and Vale (as a guide) in the US was hit 4.5%. Expect the leveraged pure plays to be taken to the woodshed.
Gold stocks will benefit as the current bullish move continues, gold traded to $1286 overnight as the safe haven risk off mood takes shape.
Important numbers coming through today, with the first at 11.30am AEST being the Australian employment rate, expected to remain at 5.9%. Anything higher than this will ring alarm bells across the banking mortgage sector as serviceability is brought into question.
Other numbers today include the Chinese trade balance figures with a surplus of $12.5 billion, with imports expected to increase by $15.5 billion and exports to increase by 4.3%.
While our markets are closed for Easter US trade, the balance will be released at 10.30pm AEST tomorrow.