Trader thoughts - The long and short of it

The market to be long it seems is Bitcoin, with price breaking the $1400 and pushing the gains for the year above 50%. Don’t ask me why this is happening, but for those traders who like a trend, this is one market that exudes trend in spades.

Market data
Source: Bloomberg

Elsewhere, in the real world, we can see the stage is set for another grind higher in Asia, with a slightly higher open expected in Japan and Hong Kong. The Hang Seng looks interesting and judging by the trend and price action on the daily chart if I saw buying coming into the market on open, then I would be jumping on-board.

The ASX 200 is expected to open at 5960 (+14 points) and once again we see the banks at the heart of that move, with ANZ coming out with 1H 17 earnings shortly. Investors will be expecting 9% cash net profit growth, and signs that margins compression may have abated. It seems likely that the market will read through the results and extrapolate what this means for NAB and WBC when they come to report in the days ahead. So while ANZ should trade on above-normal volume and potentially look to wear a 33 handle, keep a broader visual on the ASX financial sector and whether that can hone in on the 2015 highs, which are around 2.5% away.

The platform from offshore for Asia to progress is certainly there, with US equities holding modest gains despite Trump saying he’s actively considering 'breaking up the banks'. Once again the NASDAQ 100 has been the place to be invested, with another strong move higher and we look forward to Apple’s numbers tomorrow.

The topic of a new healthcare bill has been talked about on the floors and there is a growing belief that perhaps we can see a new vote in play by Wednesday. House Speaker Paul Ryan did say 'as of now' nothing is scheduled, but there is a view that the Trump Administration may actually get the numbers. The math is (in any new healthcare vote) Trump can’t afford more than 22 ‘No’ votes and according to The Hill they have exactly 22 on their 'whip list'. We watch in earnest.

We have also seen a slightly below par US ISM manufacturing report, with the index dropping to 54.8, below the consensus of 56.5. A strong decline in new orders was worryingly behind the drop, with new export orders also pulling back 50 basis point to 54.5, but the reaction in markets has been quite limited. US Treasuries have held and even attracted a few sellers and this has kept a lid of USD/JPY selling, which subsequently should support a higher Nikkei 225 open. I am looking a move through ¥112.00 as an opportunity to jump on board, for a possible re-test of the March highs of ¥115.00.

Interestingly, the AUD has had a decent night’s performance and specifically against the GBP, which has struggled as traders focused on a German news publications article on a disastrous meeting between Theresa May and Jean-Claude Juncker. After the UK voted to leave the Union last year, it seems the Europeans are not going to give the May government a compelling severance package. Who would have thought? Anyhow, GBP/AUD has seen the strongest move (-1%) in the G10 currency complex here and is just testing the 19 April highs of a$1.7112. A break of this support and I would certainly be exiting long positions and even reversing to short for a quick move into a$1.6890.

AUD/USD has re-claimed the key $0.7491 level and actually looks nicely supported. A collapse in implied volatility has helped push traders into higher yielding currency (the US ‘VIX traded below 10 overnight). Of course, all eyes on the Reserve Bank statement at 14:30 AEST and whether they provide any new colour on the Aussie housing market. We dealt a super strong employment report last month, but one solid reading isn’t the trend they are looking for and they are still interested in the unemployment and underemployment rate, not to mention extremely subdued wage growth.

But, traders will still be examining the statement for any hints that they see the domestic landscape in a slightly different way.

As things stand, the swaps market is pricing a mere two basis points of tightening over the coming 12 months and that seem fair. I wouldn’t expect today’s statement to move that pricing structure too greatly.

Logically, ANZ’s earnings will have a bigger impact on the ASX 200 than the RBA’s statement, but of course, that depends on the numbers and the outlook for its operating environment. Oil prices have found sellers and may weigh on the energy sector, while miners look supported, with small gains expected in BHP (based on the close in its American Depository Receipt). Overall, the eyes of the market continue to be on whether the ASX 200 can break into 6000 this week. A fairly, upbeat risk appetite suggests this is a reasonable probability. 

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