Trader thoughts - the long and short of it

If the Western world and US markets can just hold out another 24 hours, the tranquillity of an extended holiday weekend will buy perma-bulls a period of calm.

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Source: Bloomberg

Wall Street dangles as the Tech sector threatens a breach of quiet: Yet, there is anxiety growing over the footing the speculative rank have in the broader financial system. There are some benchmarks in various asset classes (junk bonds) and among the indices (FTSE 100) that have already broken down, but the collective stability has helped staunch the bleeding. If one of the pace-setting US indices were to take out their overt technical supports, it could create cause a speculative avalanche which would breach the unspoken rule among market participants that holiday periods are safe so traders can tune out for a stretch. The S&P 500, Dow and Nasdaq all put in for days that offered little ultimate change through the close. However, with all of them, we should be mindful to the proximity of their major trend lines and support levels in a world where systemic change is possible with a mere tweet from the likes of the US President. For the S&P 500, a well-worn trend line support stands at 2,584. Technically, the Dow’s trend line floor has given way, but an exaggerated head-and-shoulders neckline marks a turning point at 23,500. From the Nasdaq’s standings, there is a debate that can be raised as to where the floor stands. Some would say the trend line starting from the June 24, 2016, low has already given way. Of course, it isn’t about the breaks, but rather the follow through.

Another FANG component comes under pressure: While there has been a favourable wind to most major sectors’ backs over these past years of plenty, few have come even close to the charge that the tech sector has felt. Tracing out the relative performance of the S&P 500’s major sectors, its technology grouping has handily outpaced other comparable segments and has also notably, on an index level, overtaken its peak during the Dot-Com boom – which was notably almost exactly 18 years ago. The sectors are coming under pressure due to the headwinds faced by its largest members. Facebook was put in particularly harsh light when a whistleblower revealed the company had allowed a data-mining group to scrape its member details to use political campaigning. Shares are down nearly 18 percent over the past two weeks. Amazon this past session was dealt a heavy blow by reports that the President has taken a special distaste for the conglomerate and was considering avenues to alter the company’s tax status as it was undermining brick and mortar businesses. Google’s loss of a legal case to Oracle over Android seems almost quaint, but the cost of billions of dollars isn’t. When the favourite and top performing stocks start to drop, the markets pay attention.

US Dollar soars on rosy 4Q GDP revision: The US dollar rose for a second day against its top counterparts as a revised set of fourth-quarter GDP figures revealed a larger upgrade than expected. The annualized economic growth rate was notched up to 2.9 percent from the previously reported 2.5 percent. Economists were expecting a smaller upward adjustment to 2.7 percent before the release. The greenback marched higher alongside front-end Treasury bond yields while the rate hike trajectory priced into Fed Funds futures steepened, suggesting the result stoked bets on the acceleration of the monetary policy tightening cycle.

Commodities suffer as USD recovers: A stronger greenback continued to weigh against raw materials prices. Gold fell as the benchmark currency’s ascent undercut demand for anti-fiat alternatives. Crude oil suffered de-facto pressure since prices are denominated in USD terms on global markets. That was compounded by EIA inventory flow data showing stockpiles added 1.6 million barrels last week, topping forecasts calling for a meagre 146.4k inflow. The broad-based CRB Commodity Price index shed 0.65 percent, the most in seven days.

S&P/ASX 200 holds weekly range. Australian shares followed Wall Street lower, with the S&P/ASX 200 posting a 0.73% loss on Wednesday. Nine of the eleven sectors lost ground, led by a 1.22% decline in Materials, while Utilities bucked the trend as the component gained 1.38% on the day. The recent pullback may give way to range-bound conditions as market participants assess the secret meeting between North Korea and China, and the S&P/ASX 200 stands at risk of facing choppy prices ahead of the Easter holiday as participation is likely to thin ahead of the weekend. In turn, the weekly range remains in focus, with the broader outlook mired in the ongoing threat of a global trade war.

Aussie Dollar breaks range floor, hits three-month low: AUD/USD took another step toward challenging long-term trend support guiding it higher since January 2016. Prices slipped past the recent range floor to hit a three-month low. A daily close below the next near-term barrier at 0.7657 opens the door for a test of the broader uptrend at 0.7608, with a further breach beyond signalling that a major reversal is afoot. Initial resistance is at 0.7739, with a recovery above that paving the way for a return to probe the March 22 high at 0.7785 once again.

Fed’s favourite inflation indicator due – will it excite the Dollar? There is a run of data due to this upcoming session as a number of countries release the last data before an extended holiday period. From the US, the top billing is the PCE deflator for February. For most, this seems an innocuous and unimportant indicator. However, for those that monitor the Fed’s policies – particularly down to the detail of their rhetoric – this is a crucial update. It is the central bank’s favourite inflation figure as it sources the same data used for the GDP update. The headline figure is expected to hover at 1.7 percent while the core figure is seen ticking up to 1.6 percent from its previous 1.5 percent reading. These numbers are notably below the 2.0 percent target the Fed has set out as its mandate target. According to the FOMC’s own forecasts for the year, we are still on pace for another two rate hikes – and there is debate among members and market participants that a third could be realized. Yet, how probable does that become if inflation struggles to level up to 2.0 percent? Further, for FX traders, does the Dollar even care? The greenback has set a remarkably divergent course from implied and realized yields over the past years.

 

Market Data:

SPI futures moved -42.84 or -0.73% to 5789.47.

AUD/USD moved -0.0016 or -0.21% to 0.7663.

On Wallstreet: Dow Jones 0.06%, S&P 500 -0.1%, Nasdaq -0.65%.

In New York: BHP -1.45%, Rio -1.36%.

In Europe: Stoxx 50 0.43%, FTSE 100 0.64%, CAC 40 0.29%, DAX 30 -0.25%.

Spot Gold moved -1.47% to US$1325.3 an ounce.

Brent Crude moved -0.64% to US$69.66 a barrel.

US Crude Oil moved -1.1% to US$64.53 a barrel.

Iron Ore moved -0.57% to CNY434 a tonne, SGX Iron Ore moved -0.23% to US$69.75 a tonne.

LME Allumnium moved -0.34% to US$2045 a tonne.

LME Copper moved 0.71% to US$6649 a tonne.

10-Year Bond Yield: US 2.77%, Germany 0.5%, Australia 2.59%.

 

 

Written by: Ilya Spivak, John Kicklighter and David Song, Market Strategists, DailyFX

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