Trader thoughts - the long and short of it

US markets opened with the customary gap higher for major indices Monday, but the enthusiasm from the past week did not readily carry over to the opening session.

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Source: Bloomberg

Wall Street cautious advance as President Trump suggests easing pressure on China: There was some optimism that trade war pressures are easing between the United States and China following Sunday’s tweet by President Trump in which he stated support for getting Chinese mobile phone producer ZTE “a way to get back into business, fast.” This update was met by political rebuke for those that have supported the aggressive tariffs, but these are the types of markets that support status quo that has already pushed us to record highs over the years. As disconcerting as the state of global trade is, the news didn’t lend much in the way of progress. The S&P 500, Dow and Nasdaq gapped higher on the open but found essentially no follow through despite last week’s impressive clip. This week does not lend itself to much support via key event risk. Fed speaks, and the TIC capital flows report is scheduled for release Tuesday, but it would be a stretch for these events to generate serious market movement.

China’s April data run now comes with regular employment updates: The run of key monthly economic updates from China is due this morning. The country will report retail sales, industrial production and fixed assets for April, offering the first critical look into GDP at the start of the second quarter for consumption, business activity and Capex investment. Of course, this data comes with a heavy dose of scepticism from the international investment community. That said, there are no data sources that offer a contradictory view that is also more reliable. And such, the data remains the foundation for most foreign investors who aren’t hedge funds that take their own on-the-ground surveys. In this economic mix, one particular data point stands out above the others: the jobless rate survey. This is the first time this series is being circulated widely, but it is a critical economic outlet for all developed economies. Though China is still classified as an ‘emerging market’, it is very much exposed to the same critical factors that place great emphasis on the broad health of the labour markets.

UK jobs are economically important, good for Pound volatility but worthy of trend?: In the past month, the British Pound has slid across the board. Of course, the intensity of its decline matters heavily on the counterpart, but the breadth of the loss is hard to miss. This retreat has evolved out of tempering to two fundamental themes that have been responsible for much of the gains the Sterling has fought for the preceding year: Brexit and BoE rate expectations. And despite data and rhetoric slowly chipping away at the enthusiasm on both fronts, the advance persisted, until recently. Employment figures are often good for short-term volatility, but the more sensitive nature of the Pound recently could find this indicator triggering a more productive technical cue: such as an inverse head-and-shoulders pattern on GBP/USD or simply extending its decline after this pause.  

China's ZTE has become a peace offering for Trump as trade talks accelerate: An unexpected Tweet may help investors see how Chinese firms like ZTE, a champion of Chinese state-owned technology firms and recently the world's third largest supplier of telecommunications equipment have landed in the center of the developing trade talks between Trump and Xi Jinping. ZTE was hit with an export band in April but now could resume operations ‘within weeks’ after President Trump pledged to get ZTE Corp “back to business, fast” and seeming uncharacteristically concerned about jobs in China. Trump added, “Too many jobs in China lost. Commerce Department has been instructed to get it done!”When pressed about his surprised reverse course, Trump responded on Twitter, “Be cool. It will all work out.” Shenzhen-based ZTE was seen as a threat to the US National Security but now appears fast-tracked to be removed from the export ban. This development is a proxy to show the agile development and evaporation of the ‘Trade War’ fears that plagued markets earlier this year.  

Australian Dollar’s recovery has stalled: The Aussie Dollar mounted a remarkable recovery effort in the final 48 hours of this past trading week, but the move was notably lacking for tangible fundamental support. The disappointment in March home loans didn’t exactly foster confidence nor did the trade backdrop seem to translate as readily for exchange rate as it did for equity index. Again, we find the modest warming in relations between the US and China offering the currency no support to start this week. Ahead, we have the RBA meeting minutes; but there is unlikely to be a key detail from their neutral policy stance to highlight. The Chinese economic data carries more potential, but even that is limited.

Traders remain keen on the outcome for oil prices after Trump’s Iran decision: The global oil benchmark, Brent crude shows little signs of slowing down thanks in part to Trump’s decision to reinstate sanctions on Iran. The move is expected to remove ~500,000 barrels a day of Iranian crude from the market, which Saudi Arabia assured they could replace. Tuesday morning’s positive price action should also be seen in the light of the release of OPEC’s recent Monthly Oil Market Report where the cartel revised higher demand estimates 2018 that could tighten the market further. Base metals are mostly lower this morning, with copper suffering from a heavy stock build that accounted for the largest signal day build since March. LME 3month Copper fell below $6,900. Precious metals are also seeing selling pressure with XAU lower by 0.3% on a reversal of US Dollar losses.

The S&P/ ASX200 has all the hallmarks of a darling global equity index rally: Institutions are pushing their year-end targets for the ASX200 higher, and Monday’s performance can only help to bolster their confidence. The index posted a 0.3% gain TO 6,135 but unfortunately continues to chase levels that were seen last in 2008. Recently, Credit Suisse moved their year-end target to 6,500 on the accommodative RBA, the view that earnings are expected to extend their rise thanks to rising commodity prices and subdued trade-war risks, and supported Chinese demand. While ANZ was down due to trading Ex-Dividend with an 80-cent dividend heading to the pockets of shareholders, the mining stocks continued to hold their own with BHP up 1.9% and Rio Tinto at 0.7% with implied data from ADRs anticipating further gains.

Market Data:

SPI futures moved 19.11 or 0.31% to 6135.3.

AUD/USD moved -0.0012 or -0.16% to 0.7531.

On Wall Street: Dow Jones 0.22%, S&P 500 0.05%, Nasdaq 0.15%.

In New York: BHP 1.41%, Rio 0.66%.

In Europe: Stoxx 50 0.01%, FTSE 100 -0.18%, CAC 40 -0.02%, DAX 30 -0.18%.

Spot Gold moved -0.35% to US$1314.73 an ounce.

Brent Crude moved 1.43% to US$78.22 a barrel.

US Crude Oil moved 0.35% to US$70.95 a barrel.

Iron Ore moved 1.45% to CNY491 a tonne.

LME Aluminum moved -2.01% to US$2288 a tonne.

LME Copper moved 0.36% to US$6942 a tonne.

10-Year Bond Yield: US 2.98%, Germany 0.61%, Australia 2.77%.

 

Written by: John Kicklighter, Chief Strategist and Tyler Yell, CMT with DailyFX

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