Markets Today: Summer Time

The Dow Jones moved up to 22000 for the first time ever boosted by Apple’s better than expected sales report – Apple shares rose 4.7% to 157.14 after posting a 7% increase in revenue.

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The big news in equity markets has been the Dow Jones move up to 22000 for the first time ever boosted by Apple’s better than expected sales report. Amid a soft USD environment the Euro briefly traded above 1.19 and UST yields are little changed. Meanwhile commodities have had a mixed night, although oil staged a small recovery on better than expected US inventory and demand data. All that said, reports from both our FI and FX northern hemispheres teams have described the overnight session as a typical holiday thinned market day.

Apple shares rose 4.7% to 157.14 after posting a 7% increase in revenue in the most recent quarter and forecast a better than expected performance in the three months to September. The rise in Apple shares represented a jump of 50 points in the Dow, helping the index close above 2200 for the first time ever. Mixed performance on other tech shares weighed on the NASDAQ (0.0%) and after trading for the most part in negative territory, the S&P closed at 0.05%.

Yesterday’s small USD recovery in index terms was more than reversed overnight with DXY now back below the 93 mark and getting ever so close to its big support level of 92. Most of the USD weakness came from the euro and other European currencies, including GBP. The Euro traded to an overnight high of 1.1910, the first time it has traded above the figure since early May 2015.The move was short lived, however, and now the pair trades at 1.1855. Meanwhile GBP spent a second day above the 1.32 mark, up 0.20% over the past 24hrs and currently trading at 1.3224.

USD weakness cannot be attributed to a single factor. The July ADP numbers disappointed (178k pvt payrolls vs 190k), but the healthy revision to June (191k from 158k) made up for that and a little bit more. Relative to Sydney’s level UST 10y yields are little changed (+0.5bps to 2.271%) while 10y Bunds closed -0.6bps at 0.48%. So moves in rates differentials were not the casue for a softer USD. Instead, it seems that the market wants to take the Euro higher, after breaking through key resistance levels (1.1750 -1.1850), the next key resistance level is at 1.2167 (61.8% retracement).

Commodity link currencies, barring the AUD which is essentially unchanged at 0.7968, were the underperformers overnight. Yesterday oil prices were under pressure, but a report from the US Energy Information noting a decline in crude inventories and an increase in gasoline demand helped oil prices recover during the US session. WTI now trades at $49.62 and Brent is at $52.37. The NZD sits around 0.7430 this morning, after trading in a 0.7410-0.7460 (rounded) range overnight, still down from the 0.7470 pre-labour market data level. Yesterday the NZ employment surprised with 0.2% decline q/q. Our BNZ colleagues suggested the number should be treated with caution as it is likely to be more noise than anything else following strong gains.

In US politics, President Trump has reluctantly signed the Russian sanction bills. The president also announced plans to cut immigration in half (little market reaction) and yesterday’s reports that the administration is preparing a broad move against China over trade has also had a muted market reaction so far.

Finally we have also had a few Fed speakers. Fed Mester noted that she has lowered her estimate of the lowest sustainable level of unemployment to 4.75 % from 5% and said that conditions remain in place for inflation to gradually return to Fed’s symmetric 2 % goal. Mester remains of the view the Fed should continue gradually raising rates. Fed Rosengren said increasingly tight labour markets should keep the US central bank on its path to gradually raise rates. Meanwhile, Fed Bullard said more hikes would inhibit return to 2% Inflation

Coming Up

Australia’s trade balance for July is the domestic data highlight for today. Also this morning, monthly job ads are out in New Zealand and services PMI’s are released in Australia and Japan while the Caixin services and composite PMIs are out in China.

Later in the day Europe (final), Germany (final) and the UK also get their services and composite PMI’s and the Bank of England (BoE) makes its policy announcement. Then weekly Jobless claims and factory orders (Jun) are out in the US along with the ISM non-manufacturing for July. The ISM is expected to print at 56.9, down from 57.4 previously and if so it will remain at a fairly elevated level. There are no Fed speakers on the roster today.

Australia’s trade report for June is expected to reveal a somewhat leaner surplus of $1500m, down from the $2471m surplus in May. There is however a wild card to consider. As noted last month, the Ichthys LNG Central Processing facility, worth $2.7bn could be recorded as an import, similarly the massive Prelude floating LNG platform left Korea in late June and it has now arrived in Australia. So there is a risk that today we get a huge deficit, which could trigger an initial market reaction, only to be reversed on closer inspection.  Such imports would also bolster measured business investment for the June quarter with no impact on GDP until production and export of LNG commences.

As for the BoE while a no change in the official bank rate is almost unanimously expected, today’s meeting also comes with a new set of forecasts and the outlook on inflation should be an important guide on what to expect in terms of future policy settings. Kristin Forbes is no longer a Monetary Policy Committee member, however, Ian McCafferty and Michael Saunders are still expected to vote for a 25-bp increase in interest rates. If we get any more dissenters, then the pound is likely to get a boost.

Overnight

On global stock markets, the S&P 500 was +0.01%. Bond markets saw US 10-years +1.07bp to 2.26%. In commodities, Brent crude oil +0.89% to $52.24, gold-0.5% to $1,266, iron ore -1.7% to $72.30, steam coal +0.4% to $95.05, met. coal +0.3% to $180.00. AUD is at 0.7965 and the range since yesterday 5pm Sydney time is 0.7942 to 0.8043.

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