Authored by ChrisWeston
US equity fails to see follow-through buying The Dow breaks 40k but fails to hold the big level Amid a raft of US data US 2yr yields rise 7bp, curbing USD downside A picture in commodity markets – gold sits -0.4% NKY225 and ASX200 set for a weaker open, with the HK50 the outlier with 20k the target
The post-US CPI rally in risk failed to find follow-through, and the relief that was initially expressed has been partly pared back. European equity indices fell around 0.6%, with markets opening on their highs and after a slow bleed all session, saw price close on their respective lows. The S&P500 cash printed a new high of 5325 early in the cash session and like Europe saw somewhat of a buyer’s strike, with the sellers winning out all through the day, with the index closing below 5300.
54% of S&P500 stocks closed higher, with all sectors, bar consumer staples, closing in the red, where we see consumer discretionary as the weak link – led lower by Amazon which looks to test the $180 level in the near term.
The Dow did breach the 40k level to modest fanfare, but couldn’t hold the figure, closing -0.1% at 39,869. Disappointing price action for those who bought into the move after US CPI and saw the risk for a continued push and hold above the big figure.
US data came in thick and fast, but was mostly tier 2 in nature, with housing starts, building permits, and industrial production out, amid a handful of Fed speakers which offered little to worry traders. There was a focus on US weekly jobless claims which fell to 222k (from 231k last week), with some saying this was impacted by school spring break. Either way, we’ve seen bond traders reengage with short positions, where, notably, we’ve seen the 2-year Treasury push 7bp higher to 4.79%, and a degree of rate cuts being priced out by December. The impact of higher rates and bond yields has curbed the move lower in the USD, and the DXY sits up 0.2%, although the percentage changes in G10 FX have been subdued.
EURUSD did try and kick after the run into 1.0886 post-US CPI, but despite pushing to 1.0895 in Asia trade yesterday, has followed US equity lower with price now at 1.0868. AUDUSD has been well traded, with good two-way flows post-Aussie employment, and we see clear indecision in the price action. AUD bulls have not given up despite the rates market removing its skew towards hikes later this year, and we now see cuts expressed for the November and December meetings. AUDCHF longs continue to work, and the bull trend remains intact – I like this further higher, as I do AUDJPY, which has seen solid demand into 103 and could push through 104 in the near term. USDJPY also saw big demand in the move into 154, and should we see price break above 155.54 today, I would be jumping on for 156+.
In commodity markets, gold has struggled to push into $2400 and has been impacted by the moves in US yields and USD flows – price sits at $2376, so we’ve seen no real liquidation of longs, but the bulls have simply failed to see a new catalyst. Crude sits +0.8%, and copper -1%.
Asia equity looks set for a soggy start, with the NKY225 eyed to open -1%, and the ASX200 -0.5%, so those positioned in the AUS200 index for the all-time high of 7910 (set on 2 April) to be tested, may have to wait until next week. The focus will be on whether the buyer’s step and support opening weakness, or whether we see a similar move as EU/US equities, where the buyers stay clear and the market grinds lower through the day.
The HK50 is the outlier here, and futures suggest the HK cash market opens 1.1% higher – after signs were growing of a retracement after the strong rally that started on 19 April, with talk of international money managers witching back towards US equity, it’s clear that isn’t the case and the HK50 looks strong as any play and is the momentum powerhouse – 20k is the near-term target, with Alibaba and Tencent on a tear and the banks and developers also supporting.
China data will be closely watched and could impact the tape in the HK50 and mainland CSI300 markets – the monthly data deluge of new and used home prices, industrial production, retail sale and fixed asset investment is in focus – as is property investment data. Elsewhere the event risk is on the light side, with EU CPI (due 19:00 AEST) although this is a revision, and economists aren’t expecting a change from the current run rate of 2.4% on headline and 2.7% on core CPI. The US leading index shouldn’t move markets.
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submitted by /u/XGramatik
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