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Trader thoughts - the long and short of it

After five straight days of gains, the ASX fell 0.6% or 35 points to 6062 despite opening the session higher and breaching 6109.7.

Source: Bloomberg

All good things must end, even the ASX rally: Shares closed at the lows of the day, although they remain higher by nearly 5% over the last 20 trading sessions. Still, 14 stocks hit 52-week highs Friday while only two hit lows for the same period.

Say goodbye to 4% unemployment in the US: The unemployment rate broke below the 4% level in April according to official US labour-market data published Friday morning, taking it to the lowest since 2000. Investors seemed to focus on an unexpectedly soft wage inflation reading, however. Average hourly earnings grew at a rate of 2.6 percent on-year, falling short of forecasts calling for 2.7 percent. That proved to be a boon for stocks and sent front-end Treasury bond yields lower as worries about an aggressive Fed rate hike cycle eased somewhat.

Commodities echo Fed-linked read on US jobs data: Swelling risk appetite following April’s US data echoed in benchmark raw materials prices. Crude oil followed the bellwether S&P 500 stock index upward, finding dual support from sentiment trends and a weaker US Dollar since prices are denominated in terms of the benchmark currency on global markets. Gold also traded higher, with lower yields and a weaker greenback offering familiar support to non-interest-bearing and anti-fiat assets.

US role in Iran nuclear deal eyed before May 12 deadline: President Trump is due to decide whether to abandon a multilateral nuclear disarmament with Iran and re-impose sanctions. Israeli Prime Minister Binyamin Netanyahu has advocated just such a course, alleging that Iran has been lying about holding up its end of the bargain and reportedly furnishing the US with evidence to that effect. New sanctions may push businesses that want to stay in good standing with the US to cut ties with the country. Iran accounts for nearly 12% of OPEC crude oil output, so such an exodus might amount to a serious supply shock. That might see the WTI benchmark continue to rise having added 15.4% year-to-date.

US-China trade talks appears to end without a deal: A US delegation led by US Treasury Secretary Steven Mnuchin left Beijing without finding common ground on a range of major disagreements. The markets were not expecting, nor did they receive, a cure-all deal. However, Xinhua reported that delegates from both sides acknowledged the importance of US-China relationship and committed to resolving economic and trade issues through an ongoing dialogue. For now, it seems the markets may yet be spared an all-out trade war.

Fed-speak in the spotlight: Scheduled commentary from Federal Reserve officials is in focus as the trading week gets underway. Remarks from Vice Chair Randal Quarles as well as four of the central bank’s regional branch presidents (Barkin, Bostic, Kaplan and Evans) are due to cross the wires. They might help build on the narrative introduced in last week’s FOMC statement signalling an upshift in the expected pace of tightening beyond 2018. The stage might also be set for a speech from Chair Powell the following day, where he may signal that the Fed will not be deterred from raising rates by the knock-on effects of doing so beyond US borders. On balance, that might put the US Dollar back on the offensive as market-wide sentiment sours anew.

AUD/USD chart setup hints at upswing: The Australian Dollar put in a bullish Morning Star candlestick pattern after touching an 11-month low against its US counterpart, hinting a bounce may be ahead. A push above support-turned-resistance at 0.7573 may open the door for a retest of the 0.7636-43 area (38.2% Fibonacci retracement, March 29 low). A clear breach of trend line support guiding prices higher form January 2016 makes for a broadly bearish bias however, suggesting any gains from here are likely corrective. A daily close below the 50% Fib at 0.7482 may put sellers back on the offensive, paving the way for a challenge of the 61.8% threshold at 0.7327.

Markets Data:

SPI futures moved -35.38 or -0.58% to 6062.89.

AUD/USD moved 0.0008 or 0.11% to 0.754.

On Wall Street: Dow Jones 1.24%, S&P 500 1.07%, NASDAQ 1.44%.

In New York: BHP 1.36%, Rio 0.57%.

In Europe: Stoxx 50 0.61%, FTSE 100 0.86%, CAC 40 0.26%, DAX 30 1.02%.

Spot Gold moved 0.11% to US$1313.5 an ounce.

Brent Crude moved 1.59% to US$74.79 a barrel.

US Crude Oil moved 1.87% to US$69.71 a barrel.

Iron Ore moved 0% to CNY469 a tonne.

LME Aluminum moved -2.26% to US$2269 a tonne.

LME Copper moved 0.1% to US$6827 a tonne.

10-Year Bond Yield: US 2.95%, Germany 0.54%, Australia 2.77%.

Written by: Ilya Spivak, Senior Currency Strategist and Tyler Yell, CMT, Currency Strategist with DailyFX

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