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Hedge fund positioning also saw that trends are looking to extend as extreme positioning continues to align with market consensus such as further USD weakness, commodity strength, and anticipation of further volatility.
The ASX200 rose for the third straight day thanks to a simmering of geopolitical tensions. The index rose 0.2% to 5841 with the Utilities as the hot performing sector. Implied data shows Rio and BHP look set to open nearly 1% lower.
Tier-1 Chinese data is on deck today with the release of 1Q GDP, March Industrial Production and Retail Sales data. The data will be released at 10:00 AM Beijing time and will follow a healthy boost of China’s factory activity that bodes well for growth momentum. The global view seems to expect China’s economy to brush off any threats from Trump, and a recent bid in Chinese debt as the 10-year government yield drops seems to show increased confidence.
The Australian Dollar remains on the right side of flat as trade risks continue to fall. The market view is that the Aussie faces upside risks this week on economic data that is expected to support the economy such as China 1Q GDP and AU’s March employment conditions on Thursday. Technical traders are keeping an eye on the 200-DMA at 78.16 US cents per AUD as a key level that if the AUD could overtake, may lead to upside momentum.
Stocks rallied on Wall Street after a lack of immediate reprisal to the US-led missile strike in Syria over the weekend. Investors took stock of positive bank earnings and falling trade tensions to take the 30 largest stocks on Wall Street higher by ~1% ahead of the close.
A handful of Federal Reserve speakers such as Bill Dudley of the NY Fed said that financial conditions remain very accommodative while non-voter Richard Kaplan of the Dallas Fed says that three hikes remain the base case in 2018, meaning only two more are to come. A key block to the Federal Reserve currently is the lack of a 10-year yield above the Fed’s terminal rate anticipated at 3.37% for 2020 with a 10-year yielding 2.92%. Bringing down the terminal rate would be a key vote of no-confidence for long-term growth on the Fed’s behalf.
Institutional positions showed the US Dollar remains out of favour of Hedge Funds as the net speculative long positions on the index fell to the lowest level since early 2013. While the US President seems focused on the unfair weakness of other currencies like Russia and China, the US Dollar continues to trade within 1% of the YTD low.
Commodities have overtaken stocks as the darling asset of investors as commodities tend to perform well in the later stages of economic cycles as global demand increases and inflation hedges are sought. Looking to the physical markets, backwardation continues to favour buying pressure, especially in the oil market showing that the benefits to carrying the commodity exceed the cost with geopolitical pressures only helping their cause. Lastly, from a portfolio management point of view, commodities tend to show a low correlation to other assets making them favourable to own should a downturn arise.
Another Trump Tweet takes the US Dollar toward the lowest levels of the month after he called out China and Russia for playing the ‘currency devaluation game.’ The tweet showed that Trump looks to be placing a key focus on currencies in terms of their influence on trade and that he sees US rates supporting a strengthening USD despite a lack of evidence in recent statistical studies.
Markets likely see the irony that the US Treasury department did not name China or Russia as a currency manipulator in their report last week though they did say they were ‘strongly concerned’ with China’s trade imbalance.
SPI futures moved 12.26 or 0.21% to 5841.34.
AUD/USD moved 0.0009 or 0.12% to 0.7779.
On Wall Street: Dow Jones 1.03%, S&P 500 0.88%, Nasdaq 0.82%.
In New York: BHP -1.42%, Rio -0.7%.
In Europe: Stoxx 50 -0.2%, FTSE 100 -0.91%, CAC 40 -0.04%, DAX 30 -0.41%.
Spot Gold moved 0.28% to US$1347 an ounce.
Brent Crude moved -1.58% to US$71.43 a barrel.
US Crude Oil moved -1.68% to US$66.26 a barrel.
Iron Ore moved -2.35% to CNY435.5 a tonne.
LME Alumnium moved -1.72% to US$2285 a tonne.
LME Copper moved 0.13% to US$6830 a tonne.
10-Year Bond Yield: US 2.83%, Germany 0.53%, Australia 2.75%.
Written by: Tyler Yell, CMT, DailyFX