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The hint of Trump tax cuts and proximity of a Macron victory has traders excited: Markets Wrap

The hint of Trump tax cuts and proximity of a Macron victory has traders excited: Markets Wrap

US stocks are up again this morning as analysts upgrade earnings expectation and US Treasury Secretary Steve Mnuchin said the tax cut plan is close to release. Importantly though he walked back from his comments in the FT that health care needs to be done first.

 

In Europe the latest French presidential poll showed that Emmanuel Macro looks almost certain to win the first round and an associated poll on the second round showed he is likely to win handsomely in the second round. That’s underpinned the Euro (1.0723), seen French/German bond spreads narrow and driven the CAC40 index in Paris up 1.48% overnight.

Taken together that’s meant it has been a pretty good night for risk assets like the Aussie dollar (+0.41% to 0.7525) and the SPI 200 (+30 points or 0.53%). Naturally that has also put upward pressure on US bond rates and USDJPY and added a little downward pressure on gold. But the bulls have given up entirely on gold as it hangs tough at $1281.

The positive tone also helped Sterling rally a little further and it is nicely above 1.28 this morning while like gold the Swiss Franc is holding firm.  So as I said in my piece looking at the French election and the Euro this morning traders seem to be alert but not alarmed at the moment.

But if I can editorialise – while we can probably trust French polls a little better because of their construction we’ve been to this rodeo before. GBPUSD traded 1.50 before collapsing to 1.32 on Brexit day. The global body polity is fractured as the more than 40% for Le Pen and Melenchon show.

In other news oil settled a little lower even though the Saudis and other make noises about an extension to the production cut deal.  The real uptick in US shale seems to be weighing still and the head of French oil giant Total said that could drive prices lower by years end.

Today we get a look into the latest Markit PMI’s for Japan, Europe, and the US. That will be interesting as will the release of UK retail sales.

What You Need To Know (with a little more detail and a few charts)

  • S&P 500  +18 (0.75%) 2355 (7.00 Sydney)
  • Dow +174 (0.85%) 20578
  • Nasdaq +54 (0.75%) 5,863 
  • SPI 200  +28 (0.48%) 5,831
  • AUDUSD 0.7528 +0.45%
  • Gold $1281 +0.2%
  • WTI Oil $50.27 -0.34%

International

  • Steve Mnuchin said the words that stock markets in the US and around the world have been waiting for. “It will be soon, very soon…It will be sweeping, it will be significant and it will create a lot of economic growth” he said of the release of the Trump administration’s tax plan.
  • That propelled the Dow 174 points higher, the S&P 500 rose 21 points and the Nasdaq was up 62 points. This is exactly the type of news the bulls wanted to hear. It is exactly the type of news that helped propel – along with the data – US and global stocks higher. For the moment though the S&P is still inside its downtrend channel. A break would be an important signal.

  • So even though I’ve been highlighting the downtrend and the associated drift in data prints in recent week’s should the market get the a result that traders and investors like out of the French election on the weekend we could see one heck of a risk on rally in stocks and other assets early next week.

 

  • Two Fed speakers last night. Dallas Fed President Kaplan said three hikes this year is still the base case but that monetary policy would be patient and flexible as well as such moves give the Fed the time to wait and see. But his colleague, Fed governor Jerome Powell, said that “all is not well” in the US economy.
  • On that note a Reuters poll of more than 100 economists released overnight showed economic growth for 2018 was increased 0.3% to 2.7% for 2018. That’s lower than the Administration’s hopes but still pretty solid and consistent with more Fed hikes. It also suggests folks still think this first quarter flat spot is just that and will be reversed quickly…or is already being reversed.    
  • The Hermit Kingdom was sabre rattling last night. North Korea warned of a “super-might pre-emptive strike”. Pyongyang said such a strike would “completely and immediately wipe out not only U.S. imperialists’ invasion forces in South Korea and its surrounding areas but the U.S. mainland and reduce them to ashes”. :S

Australia

  • We should get a cracking rally on the ASX today. Last night US lead has already popped the SPI 200 up around 30 points but the key to the outlook for me is that the ASX200 held the important trendline support I’ve been watching for the second day in a row.
  • That’s a solid sign that the buyers are still in the market and the uptrend is still intact for the moment.

 

  • Where to now is an interesting question. 5867 is overhead resistance on the physical index and the level traders will be eying today.

Forex

  • As I noted above we’ve been to this rodeo before. Traders are confident that Macron will be the next President of the republic and have pushed spreads in and given the Euro a tiny little lift. There is a chance of a surprise because of the tightness of the race and the large cabal of apparently undecided voters. Equally the attack overnight on the Champs Elysee may galvanise some of the harder right voters toward le Pen.
  • But to me it seems Euro wants to rally and traders want to be positive about it and risk assets. So if macron does prevail we could get a solid rally Monday in Asian trade.
  • Elsewhere Sterling’s consolidation continued but it continues to attract the buyers. So while the 4-hour charts still suggest some wood to chop the topside bias remains.
  • As I wrote yesterday – or at least certainly said in my daily video – USDJPY looked like it had put in a bottom and I got my first buy signal for ages. That has been triggered as prices moved above the previous day’s high. Here’s the chart:

  • For the Aussie dollar there is nothing like a bit of risk appetite to get things moving on the buy side of the ledger. That means the Aussie has gone from G10 forex laggard to leader with a 0.4% gain as prices trade at 0.7525. You can now say technically that the 0.7470 region is very important support that needs to hold.
  • NOW, it is worth noting that everything I have written is subject to the French election this weekend. I have discussed the potential outcomes and mix of candidates who can get through to the next round’s impact on the Euro and by extension markets in my special piece today. We’ll know in our day Monday.

Commodities

  • More noises from OPEC and the Saudi Oil Minister changing his tune on the production cut extension couldn’t help crude prices overnight. WTI closed at $50.27, down 0.34%, with the second contract – tomorrow’s front contract – at $50.63. Brent is largely unchanged at $52.92.
  • What’s important about current prices and the lack of traction from the production extensions noise from OPEC is the diminishing returns they are getting from jaw boning. Last year such comments would have seen crude react positively. But it’s clear US shale production – and the uplift we are seeing – has traders spooked.
  • Indeed Patrick Pouyanne CEO of French oil giant Total said at a conference overnight that “The price may fall again … U.S. producers who have recovered quickly, will regenerate an influx of supply by the end of the year and this could have a negative impact on the markets”.
  • Both Brent and WTI need to hold the previous night’s low otherwise a larger dip could be in the offing.
  • Gold remains below important overhead resistance but has held in pretty well considering we have had a bit of a risk on rally overnight. Like all other markets the next big move – say $20 plus – can come from the French election result this weekend.
  • Copper and base metals bounced yesterday. How far this recovery can continue is interesting with $2.60/61 solid overhead resistance.

Have a great day’s trading

Greg McKenna

This post first appeared on axitrader.com here …

 

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About the Author

Greg McKenna

Greg McKenna

Greg is a trader, behavioural finance/economics guy and technical analyst. His trading methodology is based on a combination of these factors, more than 25 years experience of profitable trading and simple common sense money management and trade execution techniques.