Trader thoughts - the long and short of it

Risk buying in Europe and the Americas continues to have a solid week and will look to support the final trading day of the week.

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Source: Bloomberg

Confidence developed as the White House signalled that a Szyria attack might not be imminent and tariff threats to China were re-labelled as a negotiation.

The Australian Dollar remained largely unchanged against the US Dollar as fears of a real war are surpassing that of a trade war. The former was expected to be largely negative to Australia whereas the latter could provide a boost in commodities on the potential of supply shocks. From a broader perspective, the Australian Dollar has been performing well against the Japanese Yen and US Dollar. Recently, Citigroup published a buy signal for AUD against US Dollar despite recent AUD weakness against the New Zealand and Canadian Dollar with an initial target of 0.7915/90 with a possible extension to 0.8100.

S&P/ASX trades uneasy as US stocks whipsaw on Syrian headlines: The headline Australian stock index fell for the second consecutive day on Wednesday after US President Trump took to Twitter to threaten Syria with military action over suspected chemical weapons use in the Ghouta province. The S&P/ASX dropped by -0.2% to 5815.5. But on Thursday morning in New York, before equity markets opened, US President Trump was back waging Twitter diplomacy, suggesting that a military response against Syria may not happen “at all,” providing the spark US stocks needed to push higher on the day. Australian shares were poised to open higher on Thursday by +0.4% at the time of writing.

Metals have surged this week with a key focus on Aluminum that has jumped on United Co. Rusal, the Aluminum giant, owned by Russian billionaire Oleg Deripaska who recently landed on the US sanctions list. The lack of Aluminum supply from Rusal, the largest Aluminum producer outside of China has 

Haven metals like Gold have collapsed by more than 1% to see their largest drop in two weeks. However, ETF holdings of gold-backed funds continue to climb as a form of insurance has taken the price of gold close to the highest levels since 2016. Currently, holdings are at their highest levels since May 2013.

Trade war fears are receding, which helps dispel worries from RBA Governor Lowe who said such tensions would ‘damage the Australian economy.’ The market’s current concern appears to be on the possible implications of a looming U.S. missile strike on Syria. A report on Friday morning (Thursday US afternoon) from Reuters stated that U.S. officials are ‘fairly confident’ a chemical attack by the Syrian regime could accelerate the possibility that US President Trump follows through with his threats.

Wall Street returns to the topside as Trump de-escalates: Following the Russian Foreign Ministry’s comments on Wednesday that it would not wage “Twitter diplomacy,” US President Trump took back to the social media platform on Wednesday to suggest that a military response to Syria might not happen “at all.” Traders took kindly to the commentary, with the S&P 500 moving higher by +1.2%, the Dow Jones gaining +1.7%, and the NASDAQ adding +1.3%.

US Dollar firms as Fed rate hike expectations increase: Rate hike odds for a June move by the Federal Reserve have increased from 78% at the end of last week to 89% today, thanks in part to a hawkish tilt to the March FOMC minutes. With upside risks to inflation and growth, Fed officials have opened the door for four hikes this year. The implied odds of a December move have increased to 37% from a low of 23% last Friday. The US Dollar, which has been unresponsive to changes in rate expectations moves in recent weeks as trade concerns with China lingered, has taken to the shifting expectations kindly. The DXY Index added +0.3% on Thursday as a result.

Today, the Reserve Bank of Australia will release their semi-annual Financial Stability Report. The RBA is expected to reiterate that domestic risks remain benign, but that household leverage is still a concern that could impede future growth. On Monday, the RBA’s Minutes from their April meeting will likely echo with Philip Lowe said in a speech this week that there was no ‘strong case’ to move interest rates and that any trade war would post a great risk to Australian exports.

Markets Update:

SPI futures moved -13.15 or -0.23% to 5815.53.

AUD/USD moved 0.0001 or 0.01% to 0.7756.

On Wall Street: Dow Jones 1.31%, S&P 500 0.66%, Nasdaq 0.99%.

In New York: BHP -0.35%, Rio 1.26%.

In Europe: Stoxx 50 0.71%, FTSE 100 0.02%, CAC 40 0.59%, DAX 30 0.98%.

Spot Gold moved -0.59% to US$1337.56 an ounce.

Brent Crude moved -0.25% to US$71.88 a barrel.

US Crude Oil moved 0.09% to US$66.88 a barrel.

Iron Ore moved -0.33% to CNY446.5 a tonne.

LME Aluminum moved 2.23% to US$2250 a tonne.

LME Copper moved 0.07% to US$6950 a tonne.

10-Year Bond Yield: US 2.83%, Germany 0.52%, Australia 2.66%

 

Written by: Christopher Vecchio, CFA, DailyFX

Contributor: Tyler Yell, CMT, DailyFX

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