Trader thoughts - the long and short of it

As is often the case, US President Donald Trump was at the centre of the nervousness, after the President expressed his displeasure towards the US Federal Reserve’s projected rate hiking cycle. The commentary erased much of the optimism engendered by Fed Chairperson Jerome Powell’s glowing appraisal of US economic health in US Congress this week, with concerns now that President Trump’s heavy handedness could be turned against the United States’ (arguably) next most powerful person.

Wall Street struggled overnight, owing in part to the hit to confidence caused by President Trump’s comments, but also because of some softer earnings reports, and a general sell-off in a few of the market’s biggest players. The flattening US yield curve replaced earnings optimism in the financials space, as investors began to cast concern over the banks’ margins – along with the more extreme of a near-future recession. The Dow Jones has so far been the biggest battler throughout US trading, falling -0.5% at time of writing, while the S&P 500 and Nasdaq have also given up -0.4%.

Summarizing other market movers and shakers, it was a generally dour day for stock markets. There were none of the horrific sell-offs in any major index like there has been in recent weeks; however, a general malaise in equities could certainly be observed, with the FTSE’s 0.1 per cent climb the only gain of note. The reason for the FTSE’s luck was probably tied to a bounce in oil overnight, which steadied after the release of Crude Oil Inventories data overnight. Gold prices are still coming under pressure thanks to the rallying greenback, clinging onto the bottom of trend channel at $US1222. While for those crypto-bulls out there, the price of Bitcoin has edged back towards $US7500, in what has been the best week for the virtual currency in several motnhs.

Despite the ASX200’s habit this week of trading in large part off a US lead, SPI futures are indicating a flat open this morning. This will keep the index at its increasingly significant support-resistance level around 6260, at which it has found comfort in over several days to weeks. The level could be proving to be a slight pivot point for the ASX, which hasn’t shown a terribly strong desire to challenge new highs this week. Although this dynamic paint a more bearish picture in the short term for Aussie shares, the silver lining is perhaps that the market may be looking at this level as a consolidation – a potential omen that a run higher in the future is possible given the right conditions.

The day ahead for the ASX200 could prove an interesting one, considering that – at this point time – SPI futures markets are ignoring the North American lead. Trading yesterday was driven by a slight lift in bank and mining shares, but only to the extent that each sector drifted to the higher end of their ranges.  Commodities markets struggled considerably overnight, with bellwether copper prices hitting a 12-month lows. The price action was driven by global growth fears, which returned like a nasty cold to weigh on traders overnight. When coupled with a poor night for US financials, it would not come as a surprise if the ASX200 ends the week with some sluggish activity.

Australian employment data provided a good news story yesterday, as monthly employment figures smashed expectations. After several months of flat or negative figures – following what was on paper the longest uninterrupted stretch of jobs growth on record – the ABS data revealed that the Australian economy’s employment change far exceeded forecasts, adding just shy of 51k jobs in the month of June. The massive figure couldn’t shift the headline unemployment rate, which held at 5.4%, with the figure attributable to a kick-up in the participation rate. The numbers will be a relief for the RBA Governor Philip Lowe and his team, who have sited that interest rates can’t be shifted until a tighter labour market generates wage growth and inflation.

The Australian Dollar whipsawed yesterday, seemingly pulled in different directions by the positive local data on the one hand, and the tense global back drop on the other. The local unit touched as high 0.7440 after the release of the employment data, only to have the carpet pulled from underneath it overnight by a stronger US Dollar. It’s a pertinent message to heed for AUD/USD traders – and perhaps traders across the currency space: the AUD’s story is currently about the greenback. While local news will provide short term boosts for the local unit, for the time being the trend remains lower, as a rate-hiking US Federal Reserve underwrites the strength of the US Dollar.