It’s all about a ranging market at the moment with limited medium trends emerging albeit the equity market continues to nudge new highs. After the third week of the reporting season came to an end the S&P 500 and the Nasdaq 100 hit fresh record highs adding 0.5% and 1%, respectively. The Dow traded to a new high however sold off at that the close. NVIDIA (3.5%), Amazon (2.6%), Alphabet (2.1%), and Microsoft (1.5%) all rallied with the likes of Coca Cola, Airbnb, Zoetis, Cisco, Applied Materials, and Deere & Company poised to report their financial results this week. The yield on the US 10-year Treasury note rebounded from early losses to trade around 4.18% on Friday, the highest level since mid-December, as investors interpreted the downwardly revised CPI data as a signal that the US economy remains robust. On commodity front WTI crude futures settled at $76.84 per barrel on Friday, adding over 6% on the week and after rising over 3% in the previous day as geopolitical tensions in the Middle East continued to drive up oil prices. Of note this week in the US, investors will closely watch inflation report, followed by retail sales figures, producer inflation data, and the Michigan consumer confidence index. Additionally, speeches by several Federal Reserve officials will be monitored for signs that rates will soften.
But first let’s take a deeper dive into the inflation rate in the US. The BLS showed the CPI increased 0.2% month-over-month in December, slightly less than 0.3% initially reported while the MoM core CPI was up 0.3% at 3.9%, unrevised from the initial estimate whilst actual was MoM 0.2% at 3.4%. Figures confirmed the disinflation process last year, with no significant surprises observed in the data. The odds for a March rate cut edged up to about 18% from 15% before the CPI revision and the odds for May reduction initially edged higher but then fell back to 52%. The next big catalyst for markets is the inflation print for January due next week and we are expecting numbers in the range. Fed Chair Powell recently emphasized the need to assess data before considering rate cuts and comments from several Fed officials have also reinforced the view the Fed will not cut interest rates as soon as next month. The core rate remains stubbornly high, and the as the Fed continues to tout the need to bring it under the 2% expect little relief from high rates for the time being. The key is in the price of Oil and effects on the stubborn inflation rate.
Main news item for Monday told us that Israel is prepping for another ground assault in Gaza around the City of Rafah. This is the only border crossing between Palestine and Egypt. Egypt, where 89% identify as being Muslim has repeatedly said it is a “no go” zone for displaced Palestinians. 85% of Palestinians in the Gaza have been displaced. The US Administration has also warned Israel as to the humanitarian effects of a ground incursion especially when prior the Israeli government sanctioned a corridor for Palestinians to move to Rafah out of harm’s way. The potential for a conflict to emerge between Egypt, and Israel is a real concern plus there is potential for the 50year Camp David accord to be dissolved. There is a sense that Israel is counting on Egypt’s brotherhood to Palestinians to help placate the situation. Outside this the U.S. conducted a drone strike in Baghdad this week, targeting and killing a senior militant leader. This action has heightened tensions with the Iraqi government, a significant oil-producing nation. Time will tell. Albeit traders are looking at the potential flare up and the unknown consequences for the region to play out on the oil price and thus lift energy inflation and stall any movement on rate reductions in the US.
On the data front as mentioned in the US we have important inflation reads on Wednesday, PPI Thursday followed by weaker Retail Sales, stronger Industrial Production and Manufacturing data on Friday. A mixed bag for the Fed and thus expectations for rates to remain on hold. Thursday sees domestic Employment data, Australia's seasonally adjusted unemployment rate stood at 3.9% in December 2023, unchanged from November's 18-month high, and matching forecasts. Employment unexpectedly declined by 65.1 thousand to 14.20 million, missing market expectations of a 17.6 thousand gain and reversing from a 72.6 thousand rise in November. This is a concern, traders will be focusing on a softening employment rate which has implications towards the Reserves outlook for interest rates.
On the position front, we have not taken on too many new trades as we see no clear trend. The market continues to be ranging. A good example on this is with the oil price. We like the dips, due to Middle Eastern concerns, then as fast as it goes up it goes down the last two weeks have seen a 6% swing up and down. We have a recent … in the Dow (…), remain short the SPI (…). In the currencies … both the AUD/USD (…) and AUS/CHF (…). Commodities, in bullion market …Silver (…) with a small position in Gold (…).
Trade Focus:
Fundamentals:
ASX 200: Decided to take another look at this trade. The reasons being is that it is a good example of a ranging market with the potential for a major top to be put in place. The Australian market is known to follow the US, linked to China via the commodity market especially the price of Iron Ore and it has its own set domestic supply and demand dynamics to contend with. Valuations in the ASX200 are ...
Technical Analysis:
From a technical perspective the ASX has failed to push through 7700 since Aug 2021. Each time we come close to this level we see a rejection. In fact, since Aug 2021 it has rejected it 6 times with the resulting fall to about 6700 or 1000 pts. Since the end of January, we have been trading ....
Support …
Resistance …
Momentum …
