Trader thoughts - the long and short of it

A further weekend ballistic missile test from North Korea has done little to throw an improving sentiment off balance and FX markets have initially opened the new week on a stable note.

Market data chart
Source: Bloomberg

We heard on Friday night that former FBI director James Comey will testify before the Senate Intelligence Committee, but rather than this Wednesday, it will now take place after Memorial Day. A CNN article suggesting (citing an unidentified source) that Comey will outline that Donald Trump did actually influence the investigation into Russia’s involvement in the election has been passed around this morning. This really cements Comey’s testimony as a must-watch event. One questions if being called a 'nut job' will subsequently influence Comey’s thinking.

Perhaps it’s the lack of any clear source that is really keeping a lid on any selling of USD/JPY, with USD/JPY supported below ¥111 this morning. We are also seeing some selling in sterling, with GBP/AUD trading to $1.2981. Commentary over the weekend that the UK will walk away from talks with the European Union should they be tasked with a bill of over €100 billion is causing mild ripples, but traders are hardly getting too excited. In fact, Theresa May has gone on the attack (in an interview in the Sunday Telegraph) with calls that 'money paid in the past' should be taken into account when deciding the final bill.

One can’t see how that can be good for the UK in any shape or form, hence the selling in the GBP, although there is still a lot of water to flow under this murky bridge.

AUD/USD has opened 10 pips or weaker this morning on no real news, with rallies capped into $0.7470. It’s hard to get too excited about upside from here, although the pair looks to have found a fairer value. EUR/AUD is perhaps a more interesting way of trading the AUD this week.

One suspects this weekend news flow, which could also include mildly uncomfortable pictures of Trump armed with a sword of Saudi royalty, shouldn’t do too much to influence futures markets and we should see S&P 500 and crude open on a flat. There has a more positive stance on emerging markets, with the EEM ETF (iShares MSCI Emerging markets ETF) having a far better day on Friday, closing up 2.1% and I would be adding to longs here on a break through $41.76. We can also take a step back and see that US markets providing the ASX 200 with a firm platform to progress, with SPI futures pushing up 26 points to 5752. Keep an eye on the futures market here as a move into the 19 April lows of 5775 and into 5800 is key. A break here will be needed if the ASX 200 has any chance of moving back above 5900 in the days or weeks ahead.

So after a 1.9% loss on the week, the worst weekly performance of the year, we find the ASX 200 starting at an open of 5746. Sector-wise, we can focus on the S&P 500 and see that while the US benchmark etched out a gain of 0.7%, every sector closed up on the day, with 84% of the S&P 500 listed companies closing higher. Importantly for the ASX 200 we can see solid performance in the energy sector (+1.2%), financials (0.8%), materials (+0.9%) and industrials (1.4%), so it will be interesting if this can promote a further bid in the ASX 200 when it is fully up and running for the new week.

It’s a big week for oil with the OPEC meeting in Vienna taking place on Thursday, and the market having already disgusted news that both Russia and the Saudi’s have advocated a nine-month extension. US crude closed above the $50 a barrel mark and has recouped over 61.8% of the 19.1% sell-off seen between 12 April and 5 May, but the key question here this week is with price rallying into the meeting will the outcome live up to expectations, or will we traders sell the fact? For now, though there is good-will towards energy, but the OPEC meeting is a consideration for those holding energy in their portfolio and we may see some hedging in Thursday’s session.

On the bulk commodity side, we have hit somewhat of an another purple patch, with spot iron ore closing up 1.8%, while Dalian futures went one further and chalked out a solid 4% gain in the Friday overnight session. I like the look of the iron ore plays, and probably RIO over FMG, although both should see solid gains given VALE gained 5.3% on Friday in its US-listing. BHP, which of course has a higher influence from crude is indicated to open 1.3% higher given the close in its American Depository Receipt.

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