Sterling and Gold come under pressure | Vantage FX Market Wrap | 19 Feb 2014

Be aware, be very aware that the the global data flow, especially in the big markets is deteriorating but that stocks don’t seem to care even if the big macro market, Forex, is actually paying attention and moving around.

It is this global disconnect between stock markets and the deteriorating economic data flow around the developed world that is bothering me and while it is not exactly the bad news is good news meme we had at some stages over the past year or two there is certainly there is scant recognition that stocks are on weaker ground than a few months ago.

To this end the release of UK inflation which fell below the BoE’s 2% threshold for the first time in 4 years with a 1.9% print in December builds on Mark Carney’s soothing words the night before that the BoE is in no hurry to change tack.

Likewise the big fall in the US NAHB (home builders) index from 56 to 46 and the dip of the New York Empire manufacturing index in February from 12.51 to 4.48 is another sign that the Fed might need to taper the taper at some point. Adding to the deteriorating economic outlook in the US over the past month has been a new Gallup poll that shows Americans are now saying unemployment is once again their biggestfear at 23% in February up from 16% in January.

Also worth noting in a global macro sense was the fact that China’s central bank expressed its opinion on the recent spike in lending yesterday by withdrawing $8 billion in liquidity unexpectedly via forward repos. As a result stocks in Shanghai fell 0.77%.

In the washup though US stock traders are hardly bothered at present and the Dow has closed down 0.06%, the Nasdaq is up 0.73% and the S&P 500 has gain 3 points or 0.18% to 1842.

In Europe the FTSE was driven higher by miners, particularly BHP, with the index closing up 0.89%. On the Continent things weren’t so hot with the DAX up just 0.03% after the big fall in the German ZEW survey of 6 points to 55.7. The CAC in Paris fell 0.10%. Stocks in Milan rose 0.09% while in Madrid they fell 0.75%.

Locally on the ASX futures market overnight the SPI 200 March contract up 6 points to 5368 bid.

On global FX markets Euro has ripped higher and sits at 1.3757 but Sterling was under a little pressure after the inflation rate dipped below 2%. Good news if you want the BoE to hold off raising rates but bad news if you are a GBP bull. To me a decent Sterling reversal has begun because coming a day after BoE Mark Carney’s comments the inflation data has taken a little of the wind from the Pounds sails and its sits just under the lows of the previous day this morning at 1.6680.

1.6640 is the key and a move below here opens the way for a 100 point drop. I’m short but the mentioned level has to break before I get too excited.

The Aussie is largely unchanged after a spike yesterday post RBA minutes and sits at 0.9031 this morning. USDJPY is higher after the BoJ extended some of its accomodative measures on signs the economy and Abenomics isn’t working to plan.

On commodity markets Gold has dropped back and sits at $1523 this morning after crashing into some solid resistance yesterday morning.

I took profit yesterday – maybe too early in the grand scheme of things but I think gold has a pullback coming based on my system. To be frank I am preempting it by a day so i could get my backside handed to me – we’ll see in the next day or so.

$1304, 200 day moving average, is the key short term downside support.

Nymex crude bolted higher rising 2.43% to $102.74 ostly on weather related news it seems. Copper is unchanged at $3.34 while the Ags had a huge night with corn up 0.95%, soybeans up 1.87% and wheat up 2.26%.

On the data front today we have the release of the RBA leading index and ABS wage data. In japan its the BoJ economic survey and then the BoE’s minutes and vote cut as well as jobs data. In the US we’ll be watching the housing data, PPI and Fed minutes very closely.

Have a great day and good hunting


NB: Please note all references to rates above are approximate

To learn more about Greg McKenna, read on here.