Trader thoughts - the long and short of it

Apple has supported equity markets, with yesterday’s post-market release of Q1 sales of $78.5 billion, EPS of $3.36 and seemingly, more importantly, its guide for Q2 better than what the market had feared.

Apple
Source: Bloomberg

Apple's daily chart has well and truly broken out to the topside which is attracting the momentum-focused clients. I wouldn’t be surprised to see this above $150 in the coming months here.

On the US data side, we have seen a very strong ADP private payrolls report (246,000 jobs created vs 168,000 eyed) and a solid US ISM manufacturing report. The manufacturing index increased for the fifth consecutive month to 56.0 - the best levels of growth since November 2014. Looking at the sub-components within the survey, we can see employment moved to 56.1 (the highest since August 2014) and the new orders components, one of my key indicators suggestive of ‘animal spirits’, increased to 60.4. Domestic demand seems alive and well! After this report, the Atlanta Federal Reserve increased their Q1 GDP estimate from 2.3% to 3.4%, which seems very punchy. Recall, their model was a full 100bp too high in the Q4, so take this with a pinch of salt.

The Federal Open Market Committee (FOMC) meeting was a fairly uninspiring affair, as largely expected, with the CME Fedwatch pricing at just 4% of a move today. After careful analysis of the statement, market pricing around future rate hikes for 2017 has dropped a touch, but around two hikes are still expected, with the prospect of a move in March a lowly 17.7% (Source: CME). What we have seen is a slight recognition of the improved data flow, with their view on unemployment changing from 'has declined', to the unemployment rate is 'low', while they acknowledged sentiment indicators have improved. 'About half' of the board include some sort of fiscal stimulus in their projections.

One could extrapolate that the slight selling in USD/JPY (-30 pips or so) and initial buying in US treasuries suggested the market saw the Federal Reserve (Fed) statement as dovish at the margin, with some in the market expecting a platform to hike in the March meeting. Gold has seen better buyers and we can see a bullish ‘hammer’ candle on the daily chart (highlighting buyers happy to step in and support prices). Again, keep an eye on the $1218 level, where a break should take gold into $1241. AUD/USD has found support (the session range being $0.7596 to $0.7551) and eyeing a break of the 24 January high of $0.7609 – a break of this level becomes very interesting as it takes price into $0.7700, where the market has such strong conviction in longer-term short positions.

On the equity front, the S&P 500 is largely unchanged and has really done very little throughout the session, trading a range of 2289 to 2272, and the price action shows a touch of indecision. Implied volatility has dropped back after the excitement we saw on Monday and Tuesday which is also a reflection of the slight calming of nerves here. Either way, flat leads for Asia are in play.

On the political front, the big development has been Theresa May’s Brexit draft passing the first vote in parliament by 498 to 114 votes. A three-day discussion will commence on Monday, with a final vote in the Commons on Wednesday, with the House of Lords then set to pass shortly after. GBP/USD has rallied on the clarity to $1.2274 (at the time of writing) for new highs for the year, with the focus now turning to tonight’s Bank of England meeting and the market expecting slight revisions to the bank's inflation and growth targets for 2017.

Staying in politics, there has been a deeper discussion around the French elections, notably with the incredible proceedings that have led prior lead candidate Francois Fillon to drop back significantly in the polling, given the investigations around the misuse of public funds. New polling overnight shows the first round of voting in April going to Marine Le Pen, but then getting destroyed by the new favourite Emmanuel Macron (the overnight Elabe poll put Macron to beat Le Pen at 65% to 35%) in the second round run-off on 7 May. This event risk should start to come more onto traders' radars in the next few weeks, as Le Pen even getting a sniff of victory may send risk assets sharply lower. How do you even think about pricing risk if France could hold a referendum on future inclusion in the Economic and Monetary Union of the European Union?

Turning to the Asia open, we are calling the ASX 200 to open unchanged at 5652, with SPI futures up modestly in the overnight session. We continue to watch the 5555 area in the SPI futures and 5600 level in the cash market, as a break here sees price print a lower low and suggests a fairly quick response down to 5525 (in the cash). As it stands today though, there seems little to necessarily inspire the buyers, although we are seeing signs that the oil market could be ready to make a push higher. The various ADRs suggest modest upside for BHP on open, while CBA looks set to drop a touch.

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