European shares rebound higher in trading today

Major indices closing higher on the day. German DAX up 1.5%

The major European indices are rebounding from yesterday’s sharp declines which is all the German DAX fall -1.77%. Today that index is up 1.5% – nearly fully retracing the declines.

A look at the provisional closes are showing:
  • German DAX, +1.5%
  • France’s CAC, +1.2% (it fell -1.43% yesterday)
  • UK’s FTSE 100, +0.9% (down -1.19% yesterday)
  • Spain’s Ibex, +0.2%
  • Italy’s FTSE MIB, +0.6%
In other markets as European/London traders look to exit,
  • Spot gold is trading up $8.29 or 0.44% at $1877.90.
  • Spot silver is up at $0.12 or 0.44% at $27.85
  • WTI crude oil futures are trading down $0.39 or -0.62% at $62.97
  • Bitcoin is rebounding by $3300 or 8.6% at $41,640
In the US debt market, yields are lower, led by a -3.2 basis point decline in the 10 year.
Major indices closing higher on the day. German DAX up 1.5%_In the European debt market benchmark 10 year yields were also lower with the exception of a small 0.2 basis point gain in Germany.
us stocks
In the US stock market, the NASDAQ index is up 218 points or 1.64%, and in the process, has moved back above its 100 hour moving average at 13491.  That tilts the bias more to the upside once again.

The CPI print couldn’t keep the euro down, a whisper of tapering won’t either

The dollar is struggling to stay afloat

EURUSD daily
Last week we saw EUR/USD rapidly drop after a shock CPI report but it snapped right back over the next three days.
Yesterday was saw another quick drop on the Fed minutes. But if the CPI report couldn’t keep it down, how will the vaguest hint of a taper?
It’s now erased that part of the drop and has a bit of work to do to get to yesterday’s high of 1.2245. To my way of thinking, if something won’t fall on bad news, it will keep on rising. Europe is suddenly doing much better on vaccines and eventually they’ll sort out the recovery fund.
Meanwhile, there are some hefty option expiries at 1.2160 and 1.2175 today and tomorrow but we’ve far enough away now that I don’t expect them to come into play.

Dollar on the backfoot to start the session

The dollar is slightly weaker as the market stabilises

Steady tones across the board is helping to keep the market less nervous as compared to yesterday with the bounce in crypto also helping with sentiment somewhat.
The dollar is softer across the board as such with EUR/USD clipping 1.2200 once again after defending its 100-hour moving average in trading yesterday:
EUR/USD H1 20-05
As such, buyers remain in near-term control but will have to try and look towards breaking the 25 February high @ 1.2243 to establish further upside momentum.
Elsewhere, USD/CAD is down slightly back close to 1.2100 while AUD/USD is at session highs near 0.7760 looking to test its key hourly moving averages @ 0.7765-80.

What did the Fed minutes tell us yesterday?

The market reaction was more interesting than the minutes itself

The key passage from the Fed minutes yesterday was this:

A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.

Note the carefulness by the Fed in not making mention of the word taper in there, which by the way for those wondering was nowhere to be found in the text.

The dollar was pushed higher on the reaction and risk assets continued to reel amid the more risk averse mood, though there was a late turn in the latter at the end.
While this may be the Fed taking a small and tiny step towards tapering, it hardly is concrete evidence that we may get that by Jackson Hole in August – which seems to be the line where the market is drawing when it comes to the “big pivot” by the Fed.
The central bank’s tolerance towards key data releases will be critical in the months ahead but as far as the minutes yesterday goes, it doesn’t tell us much of anything new.
Dallas Fed president, Robert Kaplan, already voiced such an opinion at the start of the month and there might be some quarters within the Fed with somewhat similar views – even if they aren’t willing to go on the record to say that out loud.
Looking at the dollar, while it gained yesterday, I would argue that owes much to risk sentiment rather than the reaction to the Fed minutes on the balance of things.
The greenback remains vulnerable but at least it is holding at key levels for now, with EUR/USD slipping back under 1.2200 and GBP/USD also stalling at 1.4200. Even USD/CAD is also seeing a light bounce near 1.2000 and is back above 1.2100 currently.
As such, the technicals do provide some comfort for now but the pressure is not off yet.

ICYMI – China State Council says will manage supply and demand to stabilise commodity prices

Overnight from Reuters reporting, China intervention in commodities.

China will strengthen its management of commodity supply and demand

  • to curb “unreasonable” increases in prices
  • prevent them being passed on to consumers
  • cabinet urged coal producers to boost output
  • will step up adjustments on the trade and stockpiling of commodities and reinforce inspections on both the spot and futures markets
  • will crackdown on malicious trading and investigate behaviour that bids up prices
Prices in China futures are dropping hard again today on the back of these official rfemarks.

Japan May Tankan report: Both manufacturing and non-manufacturing indexes rise

Via Reuters monthly Tankan report. The manufacturing i ndex hits its highest since December 2018.

Manufacturers’ sentiment index +21


  • vs April +13


Service sector index +2 in May (first positive reading since the early months of 2020)


  • vs -3 in April


Outlooks …
  • manufacturers’ business confidence was seen unchanged at 21 in August
  • service-sector firms was forecast to rise to 13

Comments via the report:

  • manufacturers benefited from stronger overseas demand, a sign that the export-driven economic recovery remained intact
  • improvement in confidence was somewhat patchy, with firms saying they were feeling the drag from the coronavirus pandemic
The background to this survey is that m uch of Japan, including Tokyo and Osaka, are under a state of emergency until the end of the month (at least).
Reuters monthly Tankan seeks to fill in the gap left by the quarterly BOJ survey of the same name.
  • poll conducted May 6-17
  • survey of 482 large- and mid-sized companies, in which 236 firms responded
  • Reuters Tankan index readings are derived by subtracting the percentage of respondents who say conditions are poor from those who say they are good. A negative reading means pessimists outnumber optimists.

Dollar breaks to new highs after the FOMC minutes

US dollar moves higher after Fed minutes

The USD has broken to new highs after the Fed minutes suggested might be time to think about tapering.

EURUSD: The EURUSD has moved to an through (at least temporarily), the swing highs from May 10 and May 11 between 1.2175 and 1.2181.  THe pair has fallen short of the 38.2% retracement of the move up from last week’s low at 1.21707 and the 100 hour moving average of 1.21605.  Getting below each of those would increase the bearish bias. The 200 hour moving average comes in at 1.2145 currently. That would also be a level that if broken would increase the bearish bias.
GBPUSD.  The GBPUSD as just broken below its 100 hour moving average of 1.41254 and looks to test its 200 hour moving average 1.41051. The low price just reached 1.41076 and trades between the moving averages (currently at 1.4117).
USDJPY: THe USDJPY his moving above its 200 hour moving average of 109.074 and its 100 hour moving average of 109.182 . The current price trades at 109.253 .  Stay above each of those moving averages keeps the bias more in the bullish direction.
NZDUSD:  The NZDUSD has moved below its 100 day moving average at 0.71753 and traded to a low price of 0.7154. Stay below the 100 day moving average keeps appears more control. ON the downside, the 0.71495 to 0.71549 is a swing low support area (see yellow area and red numbered circles in the chart below).
NZDUSD on the hourly chart

FOMC minutes: ‘A number of participants’ said taper discussion might be appropriate at upcoming meetings

Comments in the FOMC minutes:

  • No direct mentions of tapering in the text but it says this: “A number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases”
  • The staff’s outlook for inflation was broadly unchanged
  • Jobs reports suggested that the rate of increase in private employment had slowed somewhat relative to its earlier robust pace
  • Foreign headline inflation rose considerably, boosted by temporary factors, such as the fading effects of steep price declines seen early last year and the pass-through of price increases for oil and other commodities. However, underlying inflationary pressures appeared to have remained muted.
  • The staff continued to judge that the risks to the baseline projection for economic activity were skewed to the downside and that the uncertainty around the forecast was elevated
  • participants generally noted that the economy remained far from the Committee’s maximum-employment and price-stability goals
  • Many participants also noted that consumer spending would continue to be bolstered by these factors as well as by the elevated level of accumulated household savings
  • Full text
The taper mention is the big thing but ‘some participants’ only saying that it ‘might be appropriate’ if there was ‘rapid progress’ towards the Fed’s goals. That’s hardly screaming for change.
The dollar is getting a bid on the taper talk though. I would fade that because it’s hardly definitive. This market is conditioned to freak out at any mentions of ‘taper’ though and that’s just enough to tip the scales.
At the same time, this move is fairly remarkable and underscores once again the tricky task of tapering. There is hardly a whisper of tapering here and the market is doing a bit of kicking and screaming. That itself will make many Fed members hesitant to actually taper.

Equity close: Crypto rout and taper whispers can’t keep stocks down

Closing changes for North American equities

Closing changes for North American equities
  • S&P 500 down 12 points to 4115 (-0.3%)
  • DJIA -0.5%
  • Nasdaq flat
  • Toronto TSX comp -0.6%
The equity bulls put in an impressive performance today. The crypto rout managed to spill over into a broader risk-averse tone in the early going (as insane as that sounds). FX and bonds quickly shook that off and stocks followed but later the FOMC minutes sent markets reeling again. Stocks were down big with an hour of trading left but managed a strong finish.
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