The largest volume was seen on Healthscope that was upgraded to Neutral at Credit Suisse and rose by 14.5% while Westpac, the most valuable company in the ASX fell by the most in 11 months, and is at the lowest level since June 2016 after defending the quality of their mortgage portfolio. The Financials sector were the poorest performing sector falling by 1.77% with Health Care up 2.05%.
Finally, some relief. US indices finally put in for a reliable recovery day Thursday, though progress is still restrained. Looking outside of the equities orbit, it seemed that there was a broader sense of risk appetite lifting equities, emerging markets, and junk assets. There too, the day’s performance doesn’t seem to fit a continuum but rather stands out as a potential one-off. This bounce can better be characterized as a path-of-least-resistance move or a necessary breather with the likes of the S&P 500 or Dow staring down critical technical support for long-term trends. With a shift in bias, it was easier to absorb the positive news and to translate it into meaningful market traction. With the market’s disappointment following the Netflix, Google and Twitter earnings over the past week; the same scepticism could have been applied to the after-hours report by Facebook of record earnings. Instead, the stock posted its biggest opening gap in two years and earned the tech-heavy Nasdaq a decisive pacing advantage over its peers with its own jump higher. The question is whether this enthusiasm lasts. There are a host of companies reporting earnings Friday with a notable run of oil groups. The 1Q US GDP statistics will carry a certain amount of weight as well.
On an isolated basis, the Australian Dollar is lingering near the floor of a multi-year congestion. With a rather tepid global appetite for yield and the RBA keeping the premium lower on the AUD for carrying interests, it is difficult to mount serious appetite for the struggling major. Notably, the AUD/USD was working on its sixth straight daily loss which would match the longest slide in 8 months. The technical break, however, is still in place with the trend line dating back to the beginning of 2016 behind us around 0.7630. Meanwhile, AUD/CAD, EUR/AUD, and GBP/AUD are troublingly close to their own Aussie Dollar support levels.
An important day for an expensive British Pound: The British pound is an expensive currency. That can be qualified through the same fundamental considerations that have been responsible for much of its rise and fall over the past few years. Brexit was clearly a source of panic that had an over-extended fear that pushed the Cable to its lowest level in three decades. That was overdone, so a recovery was perhaps warranted. That said, the rebound seems to price not a balanced outlook for the negotiations of the UK-EU divorce but rather an outright optimistic one. Given the Irish border and EU customs membership issues, there is a reason for scepticism. We will see how the rating agencies view the course moving forward Friday after the bell with Standard & Poor’s and Fitch both due to render their sovereign debt rating updates. On the data front, the UK 1Q GDP is also on tap. This is independently important from a market-moving perspective, but it also carries monetary policy connotations. On that front, the chances of a near-term rate hike by the BoE have dropped sharply over the past month – though the Sterling has noticeably been slow to reflect that.
BoJ Rate Decision: The Bank of Japan (BoJ) rate decision has become an event where many market participants have decided just to tune out. That is particularly risky complacency. The Japanese central bank is arguably the most dovish major central bank now in the spectrum. With the ECB vaguely shaping its plateau and eventual exit from its extremely accommodative policy stance, there are few major players still committed to the all-out support that was so prevalent five years ago. That collective flood of liquidity was very important to the recovery of the global financial markets in the aftermath of the Great Financial Crisis and beyond when the reasoning for the infusions were starting to deviate from their intended effect. If the BoJ does nothing, the impact to the markets and Yen will be minimal. However, if they signal an eventual end to their seemingly boundless QE program, we may find a surprisingly leveraged market reaction.
Despite a flood of US oil inventories coming into the world, WTI crude was able to hold near $68/bbl on news that Trump is likely set to withdraw from the Iran deal and renew sanctions on OPEC’s third largest volume oil producer. Trump’s withdraw was the prediction of French President Emmanuel Macron’s prediction and traders are attempting to anticipate how a US exit from the Iran nuclear deal will affect an already tight market. The global benchmark, Brent oil has traded at the most extreme premium to WTI since January at nearly $6/bbl.
Aluminum is still a rocky road for short traders and long trades alike as a recent 10% drop seemed to punish momentum chasers when the US Treasury lightened their enforcement on United Co. Rusal this week. The uncertainty remains high as Aluminum has seen record daily price moves in April that have lead to further concerns about pending inflation due to disrupted supply chains of critical commodities.
Mario Draghi, head of the European Central Bank decided to cast a less dire tone at the ECB rate announcement on Thursday than his counterparts recently had at the Bank of England, Bank of Canada or even Philip Lowe of the RBA recently. While the ECB did not change their bond-buying program and left rates unchanged, he did note that the ECB wants more time to assess the recent slowdown among the broad loss of economic momentum that should prove transitory in time. The ECB appears confident that inflation will eventually converge to their target as solid growth remains. Overall, Draghi’s rather balanced tone was not enough to prevent the EUR from falling lower over the session with EURAUD trading near 1.60 A$ per EUR. Mean reverting traders should note that the Australian Dollar is trading at -2 standard deviations from the 12-month average to the EUR.
SPI futures moved -10.78 or -0.18% to 5910.77.
AUD/USD moved -0.0005 or -0.07% to 0.756.
On Wall Street: Dow Jones 1.13%, S&P 500 1.1%, Nasdaq 1.71%.
In New York: BHP 0.21%, Rio 0.68%.
In Europe: Stoxx 50 0.58%, FTSE 100 0.57%, CAC 40 0.74%, DAX 30 0.63%.
Spot Gold moved -0.39% to US$1317.92 an ounce.
Brent Crude moved 0.65% to US$74.48 a barrel.
US Crude Oil moved -0.01% to US$68.04 a barrel.
Iron Ore moved 0.32% to CNY468 a tonne.
LME Aluminum moved 0.81% to US$2245 a tonne.
LME Copper moved -0.07% to US$7008 a tonne.
10-Year Bond Yield: US 2.99%, Germany 0.59%, Australia 2.86%.
Written by: Tyler Yell, CMT and John Kicklighter, Chief Strategist, DailyFX