Trader thoughts - the long and short of it

“When in doubt buy risk assets” has been the message we have been provided with once again.

bg_us stocks earnings season 3
Source: Bloomberg

One can extend this to Bitcoin too, as the wall of money continues to pour into the space. And although price has pulled back a touch from the overnight high of 9975, it feels as though there is a fairly good chance we will either see the big 10,000 mark being breached either in the next 24 hours, or at least at some stage this week. The cries from gold bugs that this is a “bubble” are resonating and who knows perhaps they are right, but what constitutes a ‘bubble’ in this regard, when there really is no universally agreed way to assess what Bitcoin is truly worth.

Either way, there is an almost hysteria playing through the crypto space and the fear of missing out, as one hears about the masses making huge profits is obviously highly emotive. Still, this is a space for the brave and one in which you need to fully respect volatility and have given huge consideration to one’s risk and money management. As the saying goes, ‘keep your friends close and your stops closer’.

Perhaps the clear issue with gold is that there is simply no movement in the US bond market, which gold has such a close correlation with and ultimately feeds off. The US 10-year Treasury (if we use this as a guide) is unchanged on the day at 2.33% has traded between 2.41% and 2.30% throughout November, which is just such an incredibly small range and it’s no wonder gold is doing very little. That said, the trend, while it is a slow grind, is higher and long positions are preferred (over shorts), and it has to be seen as a small positive that the yellow metal is still eyeing $1300 despite strong global growth, super low volatility and the S&P 500 finding a strong bid overnight. That said, I have no position here and if I had to choose I favour better upside in Bitcoin in the short-term.

It’s interesting to see any lack of move in markets on the headlines that North Korea had conducted a ballistic missile test. USD/JPY did sell-off 30 pips or so, but then turned around fairly sharply and to be fair the test was actually expected with Reuters putting out an article earlier in the session saying tests were due within days. Perhaps the bigger mover of markets has been the flows seen in sterling, with some sizeable ranges in GBP/USD and the GBP crosses. GBP/USD traded as high as $1.3387, with EUR/GBP into €0.8846. Looking ominously like we will see a chunky bearish outside day reversal. The Telegraph’s report that the UK and EU had reached an agreement in principal for the “Brexit Bill” of €60 billion, which was later denied by a British government official, caused the move but interestingly we have seen GBP largely hold the rally. So despite the official denial the market seems to believe the story and if one suspects the market will take some relief that both sides might actually working together in some capacity.

The other consideration, of course, is that the leads we have been provided for in Asia are highly constructive. On one hand the market has taken some solace from the fact that incoming Fed chair, Jerome Powell, in his Senate testimony sounded very Yellen-esq, talking up the prospect of a December hike and showing some surprise about the level of inflation. Regulation was also discussed, but the market likes the idea that the new Fed chair will keep the gradual pace of tightening underway if inflation stays low.

On the other hand, there has also been a strong focus on US tax reform and we have seen the Senate Budget Committee advance the Senate’s version of the tax bill, which is a great start but still needs a further vote on the Senate floor. US equities were rolling over into the latter stages of the session, with the S&P 500 coming off its earlier all-time high of 2621 into 2610, before news broke on the vote and US indices did a strong about turn and pushed into new highs.

US banks have flown here and this may well bode well for Aussie banks, just from semantics and the association and a simple sense check of BHP’s ADR, which is currently up 0.6%, relative to the 0.7% move in Aussie SPI futures suggests Aussie banks should probably rally by 0.5% or more and be the key points contributor into the index.

So our call for the ASX 200 open sits at 6021 and we see the market having the potential to test the 9 November high of 6052 in the near-term. Perhaps not today, but it would not be out of the realms of possibility that we see these highs come into play, with SPI futures also needing a break of its recent high of 6047. A lot will ride on the feel to other Asian markets though and if we can see good buying here it will give the moves in the ASX 200 real backbone. Yesterday, we saw the CSI 300 held and closed above its August uptrend at 3991 and could see modest gains on open this morning. The Hang Seng was down 1.2% at the lunch break yesterday, on news the Chinese regulator had suspended approvals for certain mutual funds that were allocating up to 80% of this portfolios into Hong Kong listed equities. However, after calmer heads prevailed we saw the index rally to close unchanged and we should see a stronger open here, as we should in the Nikkei 225, which will feed off USD/JPY, which now sits at ¥111.50 and has fully negated and failing to follow-through after yesterday’s bearish outside day reversal.

So, with Aussie banks expected to work well it would be positive to see energy and materials names put in a few points, although the lads are not overly inspiring, with copper -2%, spot iron ore +0.7% (iron ore futures are lower by 0.1%) and we can see small selling in US crude. Industrials should work fairly well today though and I’d expect outperformance here.

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