Weak ADP Data Hits Stocks, US Dollar And Gold
Stocks, gold and crude were lower overnight as posturing over north Korea and a weaker than expected ADP private payrolls report knocked sentiment in the run up to the month’s most important data release of Non-farm payrolls on Friday night. The US dollar suffered as a result with Euro bouncing off the hourly uptrend we highlighted yesterday and USDJPY rejecting a similar downtrend line. Today is a big day for data in Australia and its BoJ day so we’ll all be on tenterhooks to see if Kuroda has wahat it takes to drive USDJPY and inflation higher.
The ADP payrolls report was supposed to confirm the new era of moderate but sustainable growth in the US but things didn’t go according to script with the private payrolls report overnight printing 158,000 against 200,000 expected and 237,000 last month. This has put fears into the market that the markets non-farm payrolls expectation of 200,000, due Friday night, might be a little on the high side. Of course it is a very difficult number to predict and may yet still print high but after weeks of trying to drive higher and continually making marginal new highs stocks have come under pressure and gold has fallen back to test the bottom of the down trend line it has been in for ages and only a few dollars above the recent $1550 low. The fall in the ISM non-manufacturing both in terms of last month and expectations added further weight.
Also worrying traders overnight is the uncertainty around North Korea which is becoming more bellicose. This morning on Reuters we saw a headline saying,
North Korea 'formally informs' U.S. that it has 'ratified' strike, possibly involving 'diversified nuclear strike': KCNA
We have a lifestyle position of short Aussie at the moment just in case something goes a bit haywire on the Korean Peninsula. We are not hoping for it obviously but it is an asset protection strategy given that North Korea is an isolated place and is now ruled by a third generation isolatee, if I can make that a word. So who knows what is going to happen with this recent uptick in rhetoric and posturing. Overnight US Defence Secretary Hagel said that their was 'real and clear' danger from North Korea and while we hope it is just posturing from our office here in Sydney it is impossible to know – so a small short Aussie is our hedge – others might like to buy Gold in front of the recent low.
Speaking of gold the chart below gives a pretty clear view of what is going on and gold at $1557 is right on the downtrend line that it has been in for a while now. I have had a long term view for a few months now Gold is going substantially loweer and the failure of gold to hit or break the $1619 target we had recently reinforces that view. But this is long term and gold continues to cycle lower rather than crash so we respect the recent low until it breaks – if it does then $1525 and if that gives way $1440/45 becomes the target.
Just briefly on stocks Europe was weaker on the back of the US employment data with the FTSE off 1.09%, the CAC down 1.32%, DAX of 0.87 and Spain and Italy down 1.82% and 2.28% respectively. In the US the Dow fell 112 points or 0.76%, the Nasdaq dropped 1.10% and the S&P 500 was 16 points lower for a fall of 1.03% to 1554.
Looking at the chart you can see that the S&P has been constrained by the top, roofline, of the uptrend for some time now. While the JimmyR trend is still up at present the price has broken down through our fast moving average and rests just above our slow moving average. In the intial phase 1540 would be expected to be support but should it break this week then the target would be back below 1500.
Turning back to Global FX markets the Euro is a little higher after weakness yesterday in the Asian day. We noted the trendline yesterday and tweeted during the day that someone, or Mr Market, was watching this line and Euro bounced off it making a low of 1.2789 before rallying up to 1.2864 and it sits at 1.2846 this morning. Equally the Dollar Yen respected its own down trend which of course is the reverse of the Euro support given they are quoted back the front and you can see int he second of the charts below the resistance overhead for USDJPY. resistance is 93.62 today.
The Aussie made a high overnight 1.0497 again and it sits back at 1.0459 this morning. There has been a lot of support for the Aussie and the Trade data yesterday which showed a 3% increase in exports and a contraction in the trade deficit were undeniably good not just in this instance but equally for GDP given the role net exports plays in the calculation of growth. Yesterday’s low of 1.0445 is the key to the Aussie todayand if it breaks we are looking a 20-40 point sell off and perhaps a move back up 1.04.
On commodity markets gold fell out of bed again as noted above dropping 1.12% taking Silver with it as it dropped another 1.63% to $26.73 oz – watch $26.00/11, if it breaks then Silver is going much lower. Crude also was pressured with the bigger than expected build in stocks and it dropped 2.86% to $94.41 Bbl. Copper also fell 1.53% which when coupled with gold, oil and stocks suggests that the markets are a little worried about growth. Non-farm payrolls on Friday are going to be huge.
Australia sees the release of the AiG performance of services index together with building approvals and retail sales – so it is a very big morning for us here. It is also BoJ day with their decision due so this is going to be a huge moment for the USDJPY and it will be interesting to see if Kuroda can live up to the hype that the market has build around him and the BoJ’s plans. We’d have to expect that there is going to be some big announcement so watch the levels highlighted above in USDJPY.
Tonight in Europe it is Services PMI night and then jobless claims in the US.