It is all about the Fed minutes this morning.
– The Fed, like US employers and the other data we have seen recently, looked through the Government shutdown as only a temporary blip on the economic horizon. This meant that the key sentence for markets to focus on was “They (FOMC) generally expected that the data would prove consistent with the Committee’s outlook for ongoing improvement in labour market conditions and would thus warrant trimming the pace of purchases in coming months.”
– So stocks went from in the black to in the red pretty quickly as traders recognised that even though last night’s US CPI undershot expectations, printing -0.1% on the back of fuel and energy falls, Dectaper might be on the agenda and certainly it is on the table for early 2014. At the close, the Dow sits at 15,901 off a high of 16,017 for the third “fail” about 16,000 in a row. The Nasdaq is down 0.27% at 3,921 and the S&P 500 is down 7 points to 1,781.
– In Europe, stocks didn’t perform well at all and the FTSE fell 0.25%, the DAX was up slightly by 0.09%, the CAC fell 0.10%. In Milan, stocks fell 0.21%, and in Spain they dropped 0.72%.
– Closer to home on the Sydney Futures Exchange, the SPI 200 contract at 5.19am was up 22 but it is now down 10 at 5301 bid and has now decisively broken a 6-month uptrend on the charts. But its life is not its own and it clearly followed the moves on US markets. It is going to be an interesting day on the local market. On the Bond Boards, the 3’s fell 3 points and the 10’s dropped 4, reflecting some weakness offshore with US 10-year Treasuries up 9 points to 2.80%.
– On Forex markets, we now have proof in the price action that the Australian Government’s big sales of 20-year bonds to offshore investors pushed it higher the other night and it has been knocked way back down to 0.9327 this morning, 120 points off the high of the day which was exactly the same level as the previous day at 0.9447. The taper also helped the US dollar against the euro, which fell 0.81% to 1.3429, but GBP was largely unchanged at 1.6103. Interestingly, USDJPY hasn’t gained and still sits below significant technical resistance above 100 at 99.95 this morning.
– On commodity markets, Gold is getting crushed and is down at $1244 for a fall of $1.2 or $15 overnight. Copper hasn’t budged from $3.16 oz, Corn was 0.3% lower, Wheat fell 0.46% and Soybeans were largely unchanged. Bitcoin’s moves have been amazing recently and its traded a $900 high and a $453 low over the past day-and-a-half and is back at $590 this morning. Ridiculous volatility and clearly a sideshow market at the moment, even though the BoE and Fed and your author think it has long-term promise.
On the data, it is a big day with the preliminary releases of the HSBC manufacturing PMI for China and then the related releases for Europe and the US, including services PMI. These data have the ability to reverse or extend last night’s move but they are unlikely to be passive.
Greg McKenna is an active currency trader and is currently short the Aussie dollar.