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.
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.
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 dollar is struggling to stay afloat
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.
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:
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.
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.
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.
Via Reuters monthly Tankan report. The manufacturing i ndex hits its highest since December 2018.
Manufacturers’ sentiment index +21
Service sector index +2 in May (first positive reading since the early months of 2020)
- 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.
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).