Free money and QE dampening volatility even as Russia enters Ukraine

Last night is a night on markets which show the power of free money and zero interest rates on volatility. Even though Russia appears to have quietly “invaded” Ukraine and even thought US Q2 GDP was revised up to a stellar 4.2%.

The level of market moves – or to be frank the lack thereof – is remarkable because in a pre-GFC world these two events on the same night would have seen stocks sell off, the US dollar roar and most likely US yields rise as the focus on tightening renewed. Not last night, not in this new world of free love and free cash. This is a powerful message to traders, from traders – don’t worry.

At least not till we start worrying.

Tipping points are impossible to predict but as I mentioned to reasonably sized FX dealing room yesterday morning technicals can help you gauge when the preconditions for a tipping point are being set up.

It worked recently in Sterling and Euro, it worked a few years back on gold and it will work in stocks.

We aren’t there yet but with the US data supporting a move toward tightening the mood could be about to change

Anyway at the close the Dow was down just 0.25% to 17,080, the Nasdaq fell a similar amount to 4,558 and the S&P was even quieter off just 0.16% to 1,997.

On the dailies though shorter term you can see where the level to trade the S&P 500 is for both support and a break.

The data in the US as noted with the GDP was solid but jobless claims printed 298,000 which was a good result as well and pending home sales rising 3.3% was also an indication of an economy on the mend. The ime until the Fed starts to raise rates looks like it is shortening.

In Europe stocks had a weaker performance than in the US but on the face of it did reasonably well all things considered. Eyes are clearly on Draghi next week and the chance of Qe rather than Russian troops spending their “holiday” in Ukraine.

At the close the FTSE was 0.36% lower at 6,806, the DAX fell 1.12% to 9,463, the CAC dropped 0.67% while stocks in Milan and madrid were 2.03% and 1.06% lower respectively.

Sell the DAX – not advice obviously but I love this chart – says heaps.

Locally the impact was that the SPI 200 September futures fell 5 points in overnight trade to 5603. Iron ore fell again overnight which will keep the pressure on the miners again today.

In Asia yesterday for me the big news was the break below 2000 on the Shanghai B index which fell 13 points or 0.61% to 2,196. This index has now had a big reversal from 1 year highs recently and a big technical break which will suggest to those who trade it that lower levels beckon.

Watch this market for a possible lead on developed markets. The Nikkei was down 0.48% to 15,460 and the hang Seng dipped 0.71% to 24,471.

But if it was the Aussie dollar wouldn’t be at 0.9357 and gold wouldn’t still be below $1300 at $1,288 and ounce. Free money and QE is a dangerous dampener on reality – until it bites perhaps.

In other forex markets the Euro trded up to a high around 1.3120 but has weakened now to 1.3183 this morning. Sterling is at 1.6587 and USDJPy sits at 103.71.

I got out of a Euro long I instituted the other arvo at 1.3218 last night and yesterday’s Aussie trade didn’t work costing 20 pips.

Iron ore is lower again off 46 cents to $87.46 a tonne on the September futures. Newcastle coal for the same month was up 15 cents to $69.45. Nymex crude is up 67 cents a barrel to $94.57, copper is down at $3.13 a pound. On the Ags corn is up 1.21%, wheat rose 1.96% and soybeans were up 1.79%.

On the data front today Japanese CPI and unemployment will be big and Australian private sector credit will hold some interest in Australia but only some. EU CPI tonight is a big release as is US consumer consumption data.

Enjoy your weekend because next week is chock a block with data, central bank meetings, other trading catalysts and non-farm payrolls to end the week.

I can’t wait.

Greg McKenna

NB: Please note all references to rates above are approximate

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