September hike back in play, US dollar bounces markets weaken in Asia

Quick Recap

Two stories dominated trade overnight. The first was the reverberations of Stanley Fischer’s comments from Jackson Hole that implied the Fed is live for a rate hike at this month’s FOMC meeting. That set stocks on their heels in Asia, Europe and the US.

The second major theme is the continuation of the massive rally in crude overnight. The front contract of Nymex crude was up another 6.46% to $48.14. That’s more than $11, around 30%, from the low of last week. Key to the move, besides the snapback from oversold levels, is OPEC making noises about collusion on production.

Looking at the Aussie dollar and it’s worth reiterating what I wrote at Business Insider this morning:

There is no doubt the current environment of Chinese, global and local economic uncertainty is weighing heavily. Certainly the Aussie has fallen a long way in the past year as commodity prices continued to fall but as it slips below this massive 14 year uptrend that stretches back to the September 11 fall (the actual all-time low of 0.4775 was made in April 2001). The RBA today, GDP tomorrow and retail sales Thursday are vitally important near-term drivers of the Aussie. But many longer term traders will be watching this trendline.

Here’s the AUDUSD monthly chart I shared yesterday and updated this morning. Slipping or Holding???

investing.com-AUDUSD-01092015

One thing worth thinking about as this week and month progresses is that interest rate markets are only pricing a 40% chance of  Fed rate hike in September at the moment. Here’s what I said at BI this morning:

I find that amazing and it does set up some prospect of a “surprise” move even though the Fed has telegraphed its intentions for months now. That could increase volatility in markets. But Paul Griffiths, the London based CIO of Colonial First State Global Asset Management, told Business Insider yesterday morning he thought “a degree of volatility has been factored in by the Fed (as well as other central banks looking at when to move, such as the Bank of England).”

It’s a great time to be a trader at the moment – plenty of trades and trade catalysts.

Now, the overnight scoreboard (8.15am AEST):

• Dow Jones-0.69% to 16,528
• Nasdaq -1.06% to 4,777
• S&P 500 -0.85% to 1,972
• London (FTSE 100) Closed for bank Holiday
• Frankfurt (DAX) -0.38% to 10,259
• Tokyo (Nikkei) -1.28% to 18,890
• Shanghai (composite) -0.78% to 3,207
• Hong Kong (Hang Seng) +0.27% 21,670
• ASX Futures overnight (SPI September) -23 to 5,142
• AUDUSD: 0.71115
• EURUSD: 1.1214
• USDJPY: 121.15
• GBPUSD: 1.5348
• USDCAD: 1.3138
• Nymex Crude (front contract): $47.90 (falling in night futures)
• Copper (US front contract): $2.3355
• Gold: $1,135
• Dalian Iron Ore (September): 460 (denominated in CNY)
• US 10 year bond rate: 2.22%
• Australian 10 year bond rate: 2.66%

On the day – it’s HUGE today

On the data front today the Kiwis release their terms of trade and we get the AiGroup performance of manufacturing index early. China releases the “official” PMI’s at 11am and then we get Building permits and the Q2 current account for Australia at 11.30. Five minutes later the Japanese version of the manufacturing PMI is out with China 10 minutes after that. So the 11am till midday period today is going to be huge. 2.30pm sees the RBA announcement and then as Europe opens there is a raft of PMI’s being released. In Germany we also get employment and unemployment data, Italian Q2 GDP, the EU unemployment rate and then tonight we get Canadian GDP, PMI’s in the US and the Redbook index.

CHART OF THE DAY: Crude is clawing back 

We had a massive selloff in crude last month which culminated in the low last week on the front Nymex contract of $37.75. That means last night’s rally took it back a little more than 30% higher than that low.

That’s a huge  recovery and the monthly candlestick suggests a bottom. But not yet..I want to see a bit more price action before I get too bullish.

We’ve been riding the snapback higher and my outlook is that Oil can rally short term toward the 50% retracement at $50.55and perhaps even the 61.8% which comes in at $53.53 but that level and the proximity of the 200 day moving average should pull it up near term.

The worm might be turning longer term. It’s just too early to say decisively yet.