Trader thoughts - the long and short of it

There hasn’t been a terribly large amount of news overnight to create volatility in markets – let alone shift its current fundamentals.

Source: Bloomberg

Equities were collectively higher in both Europe and North America, with the FTSE100 rallying 0.7 per cent, and the Dow Jones leading US indices to climb 0.5 per cent. Between any major developments, underlying interest will be directed towards the benchmark S&P 500, which has continued its gradual and determined climb back towards its all-time highs. Although Australian shares are excluded from this, the overall positive lead from equity markets overnight has fed through to Asian futures markets, with Japanese and Chinese indices pointing to a higher open today.

ASX: SPI futures are pointing to a lower open for the ASX 200, following a day in which the index seemingly broke its multi-month uptrend. The local market closed the day’s trading at 6253, registering a 0.3 per cent loss — within once more the sideways channel that has defined trade for several weeks. Telstra shares suffered yesterday and played a big part in constraining the market, but it was the materials space that can take the lion’s share of responsibility for the ASX’s declines, falling 1 per cent amid selling pressure in commodities markets. Earnings season will begin to get a roll on in the coming days, so perhaps that may provide impetus for some bullishness; however, if not forthcoming, hope for investors may hinge on the ASX200’s ability to hold above 6220, to demonstrate the market can consolidate the last few months gains.

RBA: Local market news was preoccupied with the RBA’s monthly meeting yesterday, at which the central bank kept interest rates on hold for the 22nd straight time. The news of course came as no surprise, with passing attention being paid to RBA’s accompanying statement for some commentary and colour. Therein contained the usual blue-sky analysis of the Australian economy, while touching on the various local and international risks — primarily in the shape of concerns around private debt levels and trade-war fears. Perhaps the one novel takeaway from the statement was the softening of the RBA’s inflation expectations, which were stated to now be below 2 per cent for the rest of the year. The Australian Dollar was generally unresponsive to the event, with traders turning to today’s speech by Governor Philip Lowe for deeper policy analysis.

Oil: The price of oil will be worth keeping an interest in today, as the US moves ahead with reimposition of economic sanctions on Iran, and commodities traders prepare for the week’s release of US Crude Oil inventories tonight. The price of Brent Crude has rallied in recent days, continuing the choppy price action experienced over the last 3 months. The black stuff has been wedged between structural challenges relating to the supply of oil – owing mostly to geopolitical matters – and implicit pledges from major producers like Russia and Saudi Arabia that production will be maintained to keep prices stable. The price of Brent Crude presently sits around the $US74.50-mark, opening a likely play towards $US75.50 if oil inventories print below forecast tonight.

Tesla: The always polarising Elon Musk and his fledgling Tesla Inc were hogging the headlines again overnight, as the mercurial leader of the pioneering electric vehicle company, announced he is considering taking his company private. Siting the distractions and short-term-ism created by stock markets, particularly as it relates to predatory short sellers, Mr Musk stated his desire to buy back Tesla stock at approximately $420 a share. The move, Musk has implored, will help Tesla’s management pursue its long-term objectives more effectively, and keep its employees from the uncertainty brought about by the swings and roundabouts in equity markets. The possible privatization of Tesla must amount to some level of vindication for short sellers: though this will be no consolation to the shorters, who will probably see their positions blown-out.

Aussie Dollar: The Australian Dollar has pushed towards the higher end of its range in the last 24 hours, supported by a marginally weaker greenback and a “no-surprises” outcome to yesterday’s RBA meeting. The AUD/USD still looks like a good pair to sell on rallies, with the fundamentals remaining bearish for the Aussie currency. Conventional wisdom suggests that a renewed sell-off in the AUD/USD should be forthcoming in the not-too-distance future, owing to the widening interest rate differentials between the US and Australian economies. However, this may not eventuate for a little while yet, given the that the top of the pair’s downward trend channel hasn’t truly come close to being tested. Look for a break and hold above 0.7475 to indicate a trend reversal, and a sustained fall below 0.7310 to signal further declines for the AUD/USD.

Data day ahead: The day ahead contains some noteworthy points of interest regarding fundamental economic data, some of which will print during the local session. Australian traders will keep interest in the speech to be delivered by RBA Governor Philip Lowe this afternoon, along with Home Loan approval data this morning. Across the ditch, the RBNZ release its inflation expectation figures, which could shift the Kiwi Dollar and New Zealand interest rate markets somewhat leading into tomorrow’s RBNZ meeting. Finally, and of broader interest, will be Chinese trade balance figures, which will be perused for signs that the US-China trade war is impacting the Chinese economy.

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