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Trader thoughts - the long and short of it

A modest rebound for US indices Tuesday offered up a sentiment that was mirrored across most risk-sensitive assets the world over.

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Source: Bloomberg

Wall Street Tumble Steadies for Trade Wars and FOMC: While the session was technically a recovery, the lack of enthusiasm was difficult to miss. And, why would we expect a strong rebound at this point in the week? There were no serious fundamental footholds to reach for and the event risk only threatens to grow heavier heading into Wednesday’s session through to the week’s close. The G20’s two-day session wrapped with no meaningful reassurance that individual actions that could spawn trade wars would be avoided. Ahead, we have an FOMC rate decision that is expected to end with a hike. Then through the final 48 hours EU leaders are set to meet and discuss trade – and likely possible retaliation – ahead of the planned announcement of who falls under the US steel and aluminium tariffs expected Friday.

Fed to Hike Rates, But Will Tightening Lift the Dollar?: There is little doubt that the Fed decision due Wednesday in Washington will be one for the books. Yet, that doesn’t mean it can effectively move the Dollar. The market is nearly certain (99 percent probability according to swaps) that the central bank will hike at the meeting by 25 basis points to a range of 1.50-1.75 percent. This is also a ‘quarterlly’ meeting whereby they will release their forecasts from everything from growth to inflation to interest rates themselves. The market has taken up the debate on whether the Fed will hike 3 or 4 times in 2018. The members’ consensus will help anchor that speculation. And, then there is the new Chairman’s, Jerome Powell’s, first post-decision press conference where we will see his temperament at the helm. The only problem from a trading perspective if that the Dollar has floundered as rate forecast have soared these past 9 months and the threat of a clear shot from the trade war cannon at week’s end is more pressing.

G20 Wraps Up with Questionable Convictions: The two-day G20 summit in Buenos Aires ended with a notable boost of ambiguity. While the carefully crafted communique did not stray too far into aggressive language, the shift towards allowances for maneuvers that are distinctly isolationist was on display. Where there was an official and side-line commitment to avoid protectionism, there was a bending of linguistics to allow for moves that would nevertheless open trade wars if pursued – namely the tariffs the US plans to apply on all those who are not exempt Friday. In his statement afterwards, Treasury Secretary Steven Mnuchin tried to distinguish that trade actions were not protectionism but then went on to suggest, the US wasn’t ‘afraid of trade wars’. That sounds like diplomatic language preceding unfavourable actions.

Spencer to deliver final statement as RBNZ Governor: The RBNZ is due to deliver its own monetary policy announcement mere hours after the much-anticipated FOMC rate decision comes across the wires. No changes are expected. Indeed, traders put the probability of standstill through 2018 at nearly 70 percent. That puts the spotlight on the accompanying policy statement, which will mark the last opportunity for Acting Governor Grant Spencer to opine from the helm before being replaced by Adrian Orr on 27 March. If that inspires greater candour, a pickup in Kiwi Dollar volatility might be in store.

Australian shares fall as G20 spooks miners: The benchmark S&P 500/ASX 200 index ticked down 0.39 percent yesterday, marking the largest decline in four days. Materials led the way downward, shedding 1.35 percent. The sector accounts for a hefty 17.7 percent of the overall index, of which miners are the easily the biggest subset. Selling pressure might have reflected anxiety ahead of the second day of G20 talks in Argentina, where the grouping’s finance ministers and central bank governors wrestled with the threat of global trade war after the US hiked tariffs on steel and aluminium. 

Crude Oil Drives Commodities Higher:  Looking at broad commodity ETFs, there was a modest jump on the day for natural resources as an asset class. Yet, breaking down between groups such as agricultural, metals and energy; it was clear what was the day’s highlight. US-based crude oil rose more than 2 percent on the day and easily cleared an influential technical resistance around $62.50. While the persistent rise in US output is expected to make further headway with the API and DoE updates ahead, expectations for Crown Prince Mohammed bin Salman to pressure President Trump on the Iran deal and to broker agreement with US producers have helped to lift supply-demand speculation.

Aussie Dollar nearing two-year trend support: AUD/USD dropped to the lowest level in three months as front-end US Treasury bonds rose and the rate hike path implied in Fed Funds futures steepened, pushing the US Dollar upward. The move probably reflects pre-positioning ahead of the upcoming FOMC policy announcement. Near-term chart support now lines up in the 0.7642-55 area, with a break below that exposing a rising trend line guiding the uptrend since January 2016. It is currently coming in within a hair of the 0.76 figure. Immediate resistance is in the 0.7755-71 zone.

Market Data:

SPI futures moved -23.05 or -0.39% to 5936.38.

AUD/USD moved -0.0034 or -0.44% to 0.7684.

On Wallstreet: Dow Jones 0.59%, S&P 500 0.23%, Nasdaq 0.36%.

In New York: BHP 1.21%, Rio 0.31%.

In Europe: Stoxx 50 0.51%, FTSE 100 0.26%, CAC 40 0.57%, DAX 30 0.74%.

Spot Gold moved -0.53% to US$1309.88 an ounce.

Brent Crude moved 2.01% to US$67.38 a barrel.

US Crude Oil moved 2.16% to US$63.4 a barrel.

Iron Ore moved 1.53% to CNY466 a tonne, SGX Iron Ore moved -0.04% to US$70.46 a tonne.

LME Aluminum moved 0.14% to US$2088 a tonne.

LME Copper moved -0.49% to US$6854 a tonne.

10-Year Bond Yield: US 2.89%, Germany 0.59%, Australia 2.7%.

 

Written by: John Kicklighter, Chief Strategist, DailyFX

 

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