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Namely, the development being Sean Spicer stepping down from his post as White House Press Secretary, on the appointment of Hedge Fund Investment Manager Anthony Scaramucci’s appointment as White House Communications Director. It certainly won’t surprise that we have seen Spicer leaving his post, although the duration of his tenure was clearly unimpressive. And while Scaramucci doesn’t have a huge amount of experience in this field, Trump has been impressed with one incident in particular and his ability to have CNN retract a story regarding Trump and Russia earlier in the year.
Anyhow, the wash-up of these developments have hugely been market moving, with only modest buying in US fixed income and selling in US equities, which themselves face the sizeable proposition of 40% of the S&P’s market cap due to report this week. Names like Alphabet, Caterpillar, GM, McDonalds and Boeing will be on the docket, so earnings touch on multiple sectors. It was generally a decent week for US stocks, although we did finally see the Nasdaq 100 drop 0.04% and breaking its ten-day streak, with the S&P 500 also faring the same. Keep in mind we have seen some 20% of the S&P 500 report numbers thus far and the numbers are looking pretty good, with 69% having beaten the streets forecast, which is in-line with the level of beats we have seen in the past four quarters.
Our call for the ASX 200, based on fact SPI futures fell 25 points in the Friday night session, is for the local market to open close to 5700, so some weakness creeping in. As mentioned in prior reports, the ASX 200 is perfectly happy moving side-ways in this range of 5800 to 5650 and I continue to expect it to respect these levels in the week ahead. That said, we start to pay greater focus on the Aussie full-year earnings season, with NVT kicking off proceedings on 1 August, so if the index is to break this range, it will come down to a combination of offshore leads and more likely the numbers and the outlooks from Aussie corporates.
Perhaps the most interesting aspect to trading this week will be on Wednesday, which is shaping up to be a huge day for FX and rates traders. The market is no doubt long of AUD, notably on the leveraged side where funds increased their gross long position to 69,100 and cut back on shorts a touch, to leave the net long position at 51,500 contracts and the highest since March. Of course, we know the USD is unloved by the market and that seems unlikely to reverse this coming week, despite the July FOMC meeting and US Q2 GDP print in store. Neither event should rock the USD in any great capacity.
We know that the Reserve Bank have back tracked on the minutes to an extent, with Guy Debelle on Friday signalling the markets over interpretation on the nominal neutral rate of 3.5% and the view this could signal the cash rates was going higher. While fading the AUD rally into Debelle’s speech was perhaps a fairly clear trade (at least in hindsight), it still seems so bizarre that the RBA would throw out such numbers and rhetoric, and not expect the market to explore them in such depth.
On Wednesday we get Aussie Q2 CPI, with the numbers unlikely to excite either the AUD bulls or bears and it should be steady as she goes. A trimmed mean print of 0.3% or below on the quarter will likely remove a decent element of market pricing around rate hikes this year and cause good selling in AUD, with a move towards 80c in AUD/USD on a number above 0.7%. RBA Governor Philip Lowe then speaks shortly after and the question is whether he follows Mr. Debelle’s lead, and again, if he does this would be significant and the market will go after the AUD in a big way, clearly driven by a huge bid in front end yields. My preferred way of trading the AUD at present is long EUR/AUD, with many seeing the ECB as quite calm about the recent moves in the EUR, although we do have Eurozone inflation numbers out this week, and of course, they pose a risk.
I would also be keeping a beady eye on commodity prices this week, notably spot iron ore as a weakness has been creeping into price after the sizeable rally through July. Spot prices closed down 1.3% on Friday and could weigh on the mining space, as will oil, which lost 2.5% on Friday. A consultancy report showing an expectancy that OPEC production has increased for July, which seems perfectly fitting, given the focus this week turns to St. Petersburg and the gathering of OPEC nations. One suspects we won’t hear too much definition of output cuts, and the idea that Nigeria and Libya will join seems an even harder task.