Overnight trading once again indicates how the North American and European markets and economies are increasingly going their own way.
While the Cyprus storm continues to swirl increasing political and financial risk across the continent, flash PMI data released overnight showed that even before this latest crisis, the Eurozone economy was already in trouble. The flash numbers for both Germany and France were disappointing and indicate that the Eurozone’s problems are threatening to push the core countries back into recession again. European indices have sold off on this news led downward by France’s CAC with Germany’s DAX not too far behind. Meanwhile, Cyprus continues to work on another alternative plan which may or may not involve Russia as its banks remain closed, likely into next week.
Compared with all of the turmoil, North America increasingly appears as a haven of stability. US politicians took another step toward reducing political risk in their country with the Senate voting to extend funding to government agencies through September. It increasingly appears that the US is getting serious about negotiating a way out of their fiscal problems while winding down the series of false crises that people are getting tired of anyway. The idea of not paying Congress after a certain date if they don’t reach a deal still sounds like the most attractive way to ensure a deal gets done other than locking them in a room with no washroom breaks.
US markets continue to trade near their all-time highs, supported by comments out of the Fed that suggest the central bank intends to continue keeping QE going to support the economy through this year and well into 2014 at least. It also appears that QE may be wound down in stages rather than all at once and it could be some time afterward before the Fed considers raising interest rates.
Commodity markets have been sluggish today, weighed down by the potential impact of Europe’s problems on global resource demand. Copper tried to rally on the back of a positive flash PMI report out of China but has slumped back in recent trading. Energy commodities have been mixed with crude oil trading lower and gasoline trading slightly higher. Natural gas could get very active later this morning when storage comes out with the price near a 52 week high and the end of heating season fast approaching.
In currency markets today, NZD is the big story, posting a big rally propelled by stronger than expected. GDP. AUD and CAD have rebounded at a slower pace hampered a bit by a leadership spat in Australia’s Labour party ahead of September elections, and today’s Canadian budget.
Gold, Silver and JPY have been creeping higher while continental currencies have fallen back again as defensive capital flows out of the Eurozone continue. GBP has been running in the middle of the pack, supported by better than expected UK retail sales and borrowing numbers and reflecting its more stable financial and economic position relative to the continent at the moment.
Significant economic announcements released overnight include:
US jobless claims 336K vs 340K vs previous 332K
Canada retail sales 1.0% vs street 0.9%
US flash PMI 54.9 vs street 54.8
US house prices 0.6% vs street 0.7%
China flash PMI 51.7 vs street 50.8
France flash manuf PMI 43.9 vs street 44.2
France flash service PMI 41.9 vs street 44.0
Germany flash manuf PMI 48.9 vs street 50.5
Germany flash service PMI 51.6 vs street 55.0
Eurozone flash manuf PMI 46.6 vs street 48.2
Eurozone flash service PMI 46.5 vs street 48.2
UK retail sales 2.6% vs street 0.5% vs previous (0.6%)
UK public finances (£1.5B) vs street (£12.0B)
UK public sector borrowing £4.4B vs street £8.2B
NZ Q4 GDP 3.0% vs street 2.3% vs previous 2.0%
Japan trade balance (¥777.5B) street (¥855.9B)
Economic announcements expected later today include:
10:00 am EDT US house prices street 0.7%
10:00 am EDT US Philadelphia Fed street (3.0) vs previous (12.5)
10:00 am EDT US leading indicators street 0.4%
10:30 am EDT US natural gas storage street (71 BCF) vs previous (145 BCF)
North American indices
US30 is trading back and forth between 14,340 and 14,550 as it consolidates recent gains and works off an overbought RSI.
SPX500 continues to consolidate between 1,535 and 1,565 as it still struggles with its 2007 high. Next measured resistance on a breakout appears near 1,575 then 1,595.
NDAQ100 keeps bouncing around in the 2,760 to 2,820 area. RSI remains below 60, however, suggesting that its five month uptrend could be running out of steam.
US SmallCap 2000 has levelled off in the 935-975 area but remains in a rising channel uptrend.
Canada60 remains stuck in a channel between 725 and 745.
UK100 is staging a key test of uptrend support today. An index break of 6,370 and RSI break of 50 would signal the start of a new downtrend that could leave it vulnerable to a retest of 6,300 or even 6,220.
Germany30 appears vulnerable here. Resistance has emerged at 8,000, a lower high while RSI has been rolling over suggesting momentum turning downward. A break of 7,880 would signal a new downleg where 7,800 or 7,760 could be tested.
France40 faltered at a lower high near 3,830 and has dropped back under 3,800. RSI breaking 50 would confirm the start of a downswing where 3,725 trend support or 3,600 channel support could be tested.
Italy40 is trying to stabilize in a wide channel between 15,600 and 16,200. The index remaining below 16,000 and RSI remaining below 50 suggest it’s still in a downtrend with next support near 15.580 then 15,380.
Spain35 held 6,300 support for now, but remains in a downswing and still vulnerable to a retest of 8,130 or 7,920. Current resistance appears near 8,430 then 8,550.
Gold continues to form an ascending triangle base below $1,620. RSI breaking out over 50 signals momentum turning increasingly positive. It would still need to take out downtrend resistance near $1.625 to confirm a turnaround.
Silver continues to base build in the $28.25 to $29.50 range. Rising RSI suggests upward momentum continues to build. Next resistance on a breakout appears near a measured $30.75.
Copper has reclaimed the $3.45 level but still faces a stiff resistance test near $3.55 with support near $3.38.
US crude has stalled in the $91.75 to $93.00 range with falling RSI a concern. This could be just a normal correction in the base building process with a big reverse H&S pattern continuing to form.
UK crude remains in a downtrend trading below $109.00 with next support near $106.75 and $105.00.
Gasoline is testing the high end of its symmetrical consolidation triangle near $3.08 with next resistnace near $3.12 and $3.18 and support near $3.00.
Natural Gas is stalling near $4.00 with more resistance possible near $4.10. Overbought RSI suggests it could be vulnerable to a correction. Initial support near $3.85 then $3.65.
FX this morning
USDCAD has turned lower again as a descending triangle continues to form above $1.0180 with resistance near $1.0260. Falling RSI suggests momentum turning increasingly downward and in favour of CAD.
EURUSD remains under distribution as a big descending triangle continues to form above $1.2880 and below $1.3000 with next support on a breakdown near $1.2680.
GBPUSD is holding steady near $1.5150 today as a bullish ascending triangle base continues to form below $1.5200 with next resistance near $1.5325 and support near $1.5060 and $1.5000.