Some days I am in tune with market and others I am not. Yesterday was one of those days where I was not in sync because I simply failed to understand the impact that the swearing in of the Italian government would have on sentiment in Europe. I both underestimated the positive reaction and figured that given the nature of the coalition – that is who its constituents were – this was likely to be an anti-austerity regime which was duly confirmed overnight when the new PM said:
Italy is dying from austerity alone. Growth policies cannot wait.
But markets didn’t care because the combination of low inflation and weak data in Europe along with mixed data in the US almost guarantees the free money culture that the Fed has started, that the BoE and BoJ has embraced is coming to a European Central Bank near you.
So equities were higher in both Europe and the US. The FTSE was 0.49% higher, the DAX rose 0.76% the CAC, gee whiz, rose 1.55% and then Spain and Italy had the turbo charger on rising 1.86% and 2.20% higher respectively. In the US the excitement pushed the S&P to a new closing high at 1594 up 0.74%, the Dow closed up 0.72% and the Nasdaq was 0.85% higher.
As you can see in the chart above the S&P has had a closing high but has not yet broken the top of what you might call the box it has been in for a while now between 1520 and the 1599 zone on a futures basis. A break of here would open the way to a trendline which joins the late 90’s high with the 2007 high and which extrapolated sits at 1608 on a futures basis.
You can argue with the price action all you like, you can point out the risks to the technical outlook if the now almost 5% lower level of 1520 breaks as we did when it got close but the reality is that the market just wants to keep going up. Indeed our Jimmy R indicator has remained in a bull trend since the 7th of December last year at 1401.
It also highlights I’m a little out of tune with this market and need to sharpen up otherwise my pocket book is going to hurt like it did yesterday a little more often.
Turning to FX land and the past 24 hours have seen the Aussie reject the 1.0270/80 zone which is where the long term weekly trend line sits at the moment and rally strongly on the back of the better risk tolerance in the market. Even though we were slanted the other way with our discretionary positioning in the past few days it is encouraging for traders that the Aussie is trading up and down with risk sentiment because many traders will be more comfortable with this type of price action.
The 4 hour chart for the Aussie shows it is in a nice little up channel with the 1.0371 level the top of this channel at the moment and this might be resistance today. On the dailies our usual indicators suggest a further rise in the Aussie toward the 1.0395/1.0410 region.
Euro was also higher and we have to be honest and state that we completely underestimated the positive impact that the swearing in of the Italian government. The chart above shows Euro remains within the 1.30-32 box.
Yesterday USDJPY fell heavily to retest pretty close to our slow moving average before bouncing back. The outlook is still biased lower however and 97.00/20 remain the key supports.
On commodity markets Nymex crude rose 1.53% to $94.42 Bbl, gold rose 1.51% to $1475 and silver bounced back strongly with a 3.19% rally. Copper was up 0.99% and in the Ags the unseasonably wet weather drove corn up 6.06% which dragged wheat up 2.79% and soybeans up 2.88%.
Data
In Australia we get private sector credit and then HSBC Manufacturing PMI update for China, vehicle and housing data in Japan and then this afternoon German retail sales and French Consumer spending before German unemployment and European CPI. Tonight in the US its Case Shiller house price index, Chicago PMI.
Twitter: Greg McKenna
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