Trader thoughts - the long and short of it

The S&P/ASX 200 trend continues: The best performer was Qantas Airways that joined the global earnings party after forecasting record annual profit and excited investors by announcing large Cap Ex in the form of six new 787 Dreamlines ordered. The largest decliner yesterday was Gateway Lifestyle that forecasted lower home settlements against their prior projections earlier this year.

Twenty stocks hit 52-week highs last session with only two hitting 52wk low. The implied data from ADRs shows BHP & Rio are set to open Thursday higher by nearly 1% each.

Aussie Dollar: The Australian Dollar was the best performing major currency this past session. Despite the breadth of the move, this is likely not yet a motivated drive that will register a meaningful trend over the coming days. The battering the currency has suffered over the past weeks against the likes of the US and Canadian currencies and punctuated by the further slide after the status quo RBA earlier this week likely put the market at a speculative imbalance that traders looked to take advantage of. Meanwhile, the upcoming March trade figures and service sector PMIs for April (AiG and CBA) will offer us more tangible fundamental influence. 

Wall Street barely budges on Apple’s $100 billion share buyback plan: Apple’s impressive earnings report Tuesday evening ultimately earned its impact on the US markets this past session. However, that enthusiasm was clearly isolated. The tech giant reported $13.8 billion in net income versus $13.5 billion expected, on a 16 percent increase in revenue to $61.1 billion. What really stood out to shares traders though was the announcement that the company intended to buy back $100 billion in shares in response to the tax holiday for repatriated profits approved by Congress. This led to the biggest bullish opening gap for AAPL shares since August 2 and the strongest overall daily advance since February 1, 2017. For the tech-heavy Nasdaq 100, the impact was quickly muted with a minor bullish gap and daily performance. Meanwhile, the S&P 500 and Dow were little moved. With the FAANG earnings passed behind us and the FOMC decision not altering monetary policy materially, investors who are following the docket will shift their attention back towards trade wars as the March US trade figures are due Thursday.

A breakdown in the Chinese Yuan may become a theme:  On the surface, it appears that China may be weakening their currency ahead of US trade talks that are set to begin with Steve Mnuchin, the US Treasury Secretary.

The PBOC took the Fixing to the lowest level (most CNH per USD) since January. Naturally, a weaker Yuan would allow the officials in China to make more concessions with the US administration while potentially still coming out ahead.

Rapid Yuan declines should not be anticipated, but a further trend of weakening would be a signal that officials are taking advantage of the CFETS RMB recently reading at the highest level since April 2016.

FOMC cools on growth, warms on inflation, doesn’t materially change course: The Federal Reserve held its benchmark rate range unchanged between 1.50 and 1.75 percent at the conclusion of its two-day meeting Wednesday. That surprised no one as was obvious in the probabilities projected by Fed Funds futures and swaps. Instead, the focus was on the details. And, the market’s interest had certainly been heightened as of late owing to the Dollar’s provocative move to forge a meaningful reversal these past few weeks. Breaking down the accompanying statement, the central bank dropped a sentence from the previous briefing that the ‘economy outlook has strengthened in recent months’ but adapted its inflation assessment to suggest price pressures were on pace. Generally speaking, there is little to dispute the projected forecast for three total rate hikes in 2018 – nor settled debate over whether there will be a fourth. What matters most for US monetary policy is actually the ECB, BoE and BoJ’s policies. There is little shift in this otherwise impressive hawkish drive, but ultimately it is still remarkably low on a historical basis. The value comes from recognizing the materially more dovish views for the US central banks’ major counterparts.

Crude continues its gains on Thursday morning: Energy commodity prices recovered after bigger-than-expected build in inventories. The bright spot in the EIA Weekly Inventory Report came from distillate demand that was much stronger than seasonal averages anticipated. The point of the report that appears to be on repeat is that US oil output continues to hit new records.

Immediately after the FOMC report, the price of spot gold jumped after the Fed signalled they were going to continue to lift rates while adding a comment that they would let inflation stay within a symmetrical band.

Institutional desks are watching the US$1,300/oz. level of spot gold as a key price support point. If the price breaks lower, a few institutional trading desks think the US Dollar breakout could continue to take Gold lower.

Eurozone inflation may signal ECB’s capacity better than Draghi could: Last week, the ECB reiterated its commitment to backing out of its extremely accommodative monetary policy stance gradually, while further delaying the announcement of details for timing that traders have eagerly anticipated. From the central bank’s perspective, that was the most significant move they could make without stoking fear that their confidence in the economy and/or financial system was flagging. Yet, this group finds itself in a difficult situation where they are falling behind the curve as the Fed continues to tighten and their own easing is yielding smaller and smaller results. That said, they have struggled to meet their mandate and are concerned over the level of the Euro as speculators have built up a distant rate forecast premium. Where Draghi and company had to walk a fine line, data can be blunter. This past session, the Eurozone 1Q GDP slowed in-line with expectations. More important ahead, is the region’s inflation pace. Earlier this week, German, Italian and Portuguese CPI readings all weakened. Between the EZ CPI reading and the European Commission’s updated growth forecasts, we will have the full picture for ECB decision making.

Markets Update:

SPI futures moved 34.95 or 0.58% to 6050.19.

AUD/USD moved -0.0015 or -0.2% to 0.7491 - Session High: 0.7537 Session Low: 0.7485

On Wall Street: Dow Jones -0.78%, S&P 500 -0.59%, Nasdaq -0.39%.

In New York: BHP 1.49%, Rio 0.84%.

In Europe: Stoxx 50 0.5%, FTSE 100 0.3%, CAC 40 0.16%, DAX 30 1.51%.

Spot Gold moved -0.42% to US$1304.6 an ounce.

Brent Crude moved -0.05% to US$73.09 a barrel.

US Crude Oil moved 0.7% to US$67.72 a barrel.

Dalian Iron Ore moved 2.35% to CNY479.5 a tonne.

LME Aluminum moved 0.22% to US$2260 a tonne.

LME Copper moved -0.91% to US$6745 a tonne.

10-Year Bond Yield: US 2.97%, Germany 0.58%, Australia 2.8%.

 

Written by: Tyler Yell, CMT, Currency Strategist and John Kicklighter, Chief Strategist with DailyFX