Atlantic Economic Divide Grows Driving Capital Back Toward American Shores
North American and European markets appear set to head in opposite directions today on differing economic outlooks.
European indices have been in retreat today, led downward by Spain and Germany following a round of disappointing GDP numbers out of Europe that indicate both core and peripheral countries continue to struggle. Greece employment numbers continue to worsen further highlighting the failure of austerity at any cost to salvage the situation. Continental currencies also find themselves in full retreat led downward by EUR, with SEK and NOK also losing similar ground. The FTSE and GBP are also trading lower but falling at a more moderate pace.
US indices have been trading lower overnight, but have started to rebound following a surprisingly strong US jobless claims report, which, along with falling foreclosures, indicate that US economic conditions continue to improve. A flurry of big mergers continues this morning with the American/US Airways deal being followed today by Berkshire Hathaway agreeing to purchase Heinz.
USD has also been strengthening today as capital moves back across the ocean. Other defensive havens like JPY and precious metals have also bounced but their moves have been more feeble. CAD has been able to hold its own against the rising greenback.
JPY could still be active over the next few days with the recent selloff widely expected to be a topic of contention at this week’s G-20 meeting following mixed signals out of the G-7 earlier this week.
The strongest major today has been NZD, soaring and breaking out on the back of positive PMI and consumer confidence reports. It has been gaining ground on AUD of late, which has been trending lower on speculation of potential RBA easing.
This divergence can also be seen in the narrowing spread between US crude oil and UK crude oil. Gasoline and natural gas are also moving in opposite directions today on seasonal factors with gasoline picking up heading toward driving season and natural gas slipping ahead of storage numbers as home heating season nears its end for this year. In grains, soybeans are getting pounded on speculation that a strong South American crop could make up for some of the damage done by last year’s North American drought.
The Bank of Japan announced no changes to monetary policy last night (interest rates or QE) which came as no surprise given the change in leadership coming in March.
The Bank of Korea also maintained monetary policy, keeping its benchmark interest rate at 2.75%
It’s been a busy day for economic data, dominated by disappointing GDP announcements. Highlights include:
US jobless claims 341K vs street 360K
US foreclosures (28%) over year (7%) over month
Japan GDP (0.4%) vs street 0.4%
Germany GDP 0.4% vs street 0.5%
France GDP (0.3%) vs street (0.2%)
Italy GDP (2.7%) vs street (2.2%)
EuroZone GDP (0.9%) vs street (0.7%)
Greece GDP (6.0%) vs street (6.9%)
Greece unemployment rate 27.0% vs street 26.8%
NZ Business PMI 55.2 vs previous 50.1
NZ consumer confidence 121.0 vs street 118.3
Highlights of upcoming releases include:
US Natural Gas storage 10:30 am ET, street (166 BCF) vs previous (118 BCF)
Berkshire Hathaway along with 3G have agreed to purchase Heinz for $28 billion, or $72.50 per share in a friendly deal.
It’s also a very big day for earnings reports. Highlights include:
Cisco Systems $0.50 vs street $0.48
Barrick Gold $1.11 vs street $1.06
Kinross Gold $0.24 vs street $0.21
EnCana $0.40 vs street $0.34
Penn West ($0.11) vs street $0.03
Precision Drilling $0.21 vs street $0.15
EOG Resources $1.61 vs street $1.37
Sun Life $0.76 vs street $0.62
MetLife $1.25 vs street $1.18
PepsiCo $1.09 vs street $1.05
Molson Coors $0.69 vs street $0.64
North American indices
The Dow Industrials (US30 CFD) were unable to retake 14,000 and are dropping within a megaphone top with next support near 13,850.
The S&P 500 (SPX500 CFD) have started to slide within a megaphone top pattern, with resistance near 1,525 and support near 1,495.
The S&P/TSX 60 (Toronto60 CFD) continues to creep higher within a 725 to 745 trading range.
Copper continues to bounce around between $3.70 and $3.78 as a bullish ascending triangle continues to form below $3.82. A rising RSI holding 50 indicates that the broader uptrend remains intact.
US crude remains supported above $96.50 and continues to trade in the upper half of a $95.00 to $98.00 trading channel. RSI bounce off of 50 indicates upward momentum remains intact.
UK crude remains in an uptrend but is consolidating in the $117.50 to $119.50 range as it works off an overbought RSI. Next resistance on a breakout appears near $121.00 then $122.50.
Gasoline remains well supported above $3.00 as it consolidates below $3.10. Next resistance on a breakout appears near $3.20-$3.24 then $3.42.
Natural Gas continues to bounce around between $3.20 neckline support and $3.35 with additional resistance in place near $3.45 and $3.65. Next support on a breakdown appears near $3.05 then $2.75.
Corn remains below $7.00 and in a downswing with RSI suggesting there could still be room to drop. Next support appears near $6.75 then $6.00.
Soybeans are trying to stabilize in the $14.00-$14.30 range following a recent selloff but a retest of $13.65 can’t be ruled out.
Wheat is holding near $7.30 as a positive RSI divergence suggests downward momentum may be slowing. Downtrend resistance appears near $7.60.
Orange Juice has gone into rally mode again, taking a run at 130 while support moves up toward the recent 125 breakout point. Next upside resistance appears in the 140-144 area near the top of the current channel.
FX this morning
Gold has found some support near $1,640 but its inability to retake its $1.650 breakdown point suggests this likely represents a pause within a broader ongoing downtrend. Next key support appears near $1,635 then $1,590 on trend.
Silver has found some support near $30.60, but needs to get back above $31.50 former trend support in order to call off the current downswing. Next support appears near $30.00 then $29.60.
Platinum keeps trending higher, holding above $1,700 and trading near $1.725 with next upside resistance near $1.740 then a measured $1.780.
USDCAD is sitting on par today after dropping back from a double top near $1.0100. Next downside support appears near $0.9930 with a break of $0.9900 needed to call off a big ascending triangle.
EURUSD is rolling down again testing $1.3300 with next support near $1.3250. RSI falling under 50 suggests the correction could deepen but the pair remains in an uptrend above $1.3100 trend support.
GBPUSD remains under pressure today, breaking down to another new low on trend and testing $1.5500. Next potential support after that appears near $1.5470, $1.5390 and $1.5290. Initial resistance appears near $1.5550 then $1.5635.
USDJPY is consolidating in the 93.00-93.80 area within the context of a continuing uptrend. Next resistance appears near 94.50 with more support near 92.00.
AUDUSD has bounced to test $1.0375 resistance which it needs to retake to call off the current downtrend and suggest a retest of $1.0400 or $1.0460. Next downside support on trend appears near $1.0325 then $1.0290, $1.0225 and $1.0150.
NZDUSD is breaking out today clearing $0.8475 to complete a big ascending triangle and signal the start of a new rally phase that would be confirmed by a break through $0.8500. Next resistance after that appears near a measured $0.8790 then the 2011 peak near $0.8840.