Trader thoughts - the long and short of it

Apple’s earnings didn’t seem to revive the market’s vigor, as many had hoped this past session. Despite the world’s largest company (by market cap) reporting an unexpectedly robust sales forecast for its fourth quarter.

Market data
Source: Bloomberg

The report earned Apple shares a significant gap higher Wednesday, but the trickle down benefit to the rest of the ‘risk’ facing market seemed to taper off from there.

The Dow managed to close above 22,000 for the first time, but offer little in follow through. Further, the tech-heavy Nasdaq didn’t fair nearly as well, while broader measures for US equities like the S&P 500 and Russell 2000 were little changed and negative respectively.

In these lethargic conditions, the extremely low measure of VIX and other ‘risk’ measures looks less a boon for progress and more a break on speculation. What will inspire bulls to add to their risk exposure if growth, easy monetary policy and earnings figures as of late are struggling?

Wall Street: As has become the norm these past few weeks, the US benchmark indexes were little changed again on a session over session measure. The Dow’s 22,000 break was the bullish headline of the day, but the relatively tepid 0.2% climb that afforded the milestone speaks to the lack of enthusiasm mustered by the market on the development.

A slight S&P 500 advance keeps a prominent head-and-shoulders pattern in play, while the 1.1% drop from the Russell 2000 is starting to lead market participants to worry that the ‘Trump rally’ is fading. Hopes for quick implementation of growth and business-friendly policies such as infrastructure spending, tax reform, financial regulation rollback and others is shifting to the familiar skepticism of political gridlock and dependency on speculation along with monetary policy that has become the normal diet globally. While many US indexes are still at or near record highs, the underperformance of broader indexes versus concentrated blue chips can speak to a leading sign that confidence is faltering at the fringes first.

Bank of England’s ‘Super Thursday’: Top event risk ahead comes with the London session’s Bank of England monetary policy meeting. While the UK central bank is not considered the most exciting of the major policy authorities, it is in a critical place in the spectrum. With a limited-engagement QE program still in place from the post-Brexit meeting and rates just off of zero, this is technically still an extreme dove. However, the language from the group both in group capacity and in individual speeches from its members, speaks to a policy standing that may turn the corner faster than many of its viable counterparts.

This has profound implications for the Sterling, as a signal that the central bank’s economic and financial concerns of a pained Brexit landscape are not being realised – and that the premium afforded to those starting to raise rates again may increase. Yet, we should also remember the big picture implications. If another major central bank moves away from extreme accommodation towards normalisation, we are one step closer to the realisation that the speculative reach backed by global easy money may soon fall apart.

RBA and RBNZ Rate Speculation: Following the Bank of Canada’s rate hike last month, speculation that other central banks – particularly those with currencies that hold significant connections to their carry appeal – would be soon to follow. That has contributed heavily to the past weeks’ rallies for the Aussie and Kiwi dollars.

While the path may have been illuminated by the BoC before them, the RBA and RBNZ still need to find the economic justification to move against the backdrop of uneven exports, lacking domestic consumption and dangerously inflated housing markets. Against that backdrop, the disappointment in Q2 New Zealand employment statistics (a 0.2% drop in employment) and the RBA’s reticent language cuts particularly deep for FX traders.

Bitcoin After the Fork: The ‘hard fork’ has happened for the most popular of cryptocurrencies, and the casual observer may not see anything too damning about the event. However, the impact for bitcoin is not an encouraging one. The split between bitcoin and bitcoin cash may not have doomed the former or seen the latter wither at birth, but it does carry a very significant implication for the otherwise young asset class of digital currencies.

As we see even more options in this space grow, it dilutes the strength of the leaders that would more readily be adopted by countries and regulators as the template for full integration of crypto to the financial system. That may not shake up the average speculator here for the action, but it will weigh on the ‘investor’ looking for broad adoption for long-term opportunity.

Australia Dollar: The Aussie Dollar’s performance was a mixed bag this past session, with European currencies like the Euro and Pound outperforming while the US Dollar, Yen and New Zealand Dollar lost ground.

Given this performance, it seems that more motivated counterparts were taken advantage of a listless AUD. That isn’t surprising given the throttled rate speculation behind the erstwhile carry currency. So long as the AUD/USD holds above 0.7850, bulls will hold onto their forecast – or hope.

ASX: The ASX simply cannot escape its 5,800 to 5,650 range. While a break is inevitable, it is not clear what could motivate this future. Will it be a local economic surprise? Will a remarkable update from China send feedback through the export channel? Or perhaps the next move simply awaits the global shift in equities and risk assets?

It isn’t clear, but breaking down sector performance in these conditions seems to render only motivation and timing for range bound swings. Speaking of, the weak showing in futures trading before the open mirrors the soft performance of US indices, but so does the later recovery of overnight lows.

Commodities: The strong motivation behind commodities recently seems to have throttled back. Metals find gold, copper and silver consolidating following their uniform rallies through the second half of June. WTI crude has clawed back some of the losses suffered it Tuesday’s steep decline, but the momentum that start with the 47.25 break seems to have been lost.

Commodity-specific volatility measures still remain extraordinarily low which suggests traders are not planning on any painful reversals hiding in the wings. However, that seems more an obliviousness that infects the global financial system rather than just optimism for the commodities world.

Market Watch:

S&P/ASX 200 down 28.169 points or -0.48% to 5776.625

AUD +0.00% to 0.7968 US cents

On Wall St, Dow +0.24%, S&P 500 +0.05%, Nasdaq +0.00%

In New York, BHP -0.55%, Rio -2.38%

In Europe, Stoxx 50 -0.52%, FTSE -0.16 %, CAC -0.39%, DAX -0.57%

Spot gold -0.02% at US$1266.45 an ounce

Brent crude +1.10 % to US$52.35 a barrel

Iron ore -1.17% to US$84.18 a tonne

Dalian iron ore at 569.5 yuan

LME aluminium (cash) -0.58% to $US1884.00 a tonne

LME copper (cash) -0.41% to US$6313.25 a tonne

10-year bond yield: US 2.27%, Germany 0.49%, Australia 2.70%

 

By John Kicklighter, Chief Strategist, IG Chicago 

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