U.S. traders came in and pressed the ‘risk on’ button, helped by a cracker of a consumer confidence print, with the index reaching levels of confidence last seen in December 2000. It’s no surprise to see SPI futures higher when we are looking at S&P 500 Futures some 0.6% higher than where the ASX 200 cash closed.
Risk has been on the front foot though in most asset classes, assisted by U.S. crude moving higher to the tune of 1.3%, helping credit perform and we can see the HYG (NYSE:HYG) pushing up 0.6% and eyeing a break of the neckline of the March double bottom of $87.53.
This move in oil seems widely telegraphed by the Aussie equity traders who bid up the ASX 200 energy sub-sector 1.5% yesterday. Expect further gains today though.
We can see reasonable selling in fixed income, across the curve (U.S. 5-year is up 4bp at 1.95%). However, importantly, ‘real’ yields have moved up nicely too and it’s quite a surprise then to see gold largely unchanged on the day. The USD has been bid, with USD/JPY rallying a big figure off the session low of ¥110.2 and despite talk in some circles that cable was hit as the Scottish parliament backed an independent vote (65 to 59) nothing has really changed here – a vote still needs to be passed by the UK government and Theresa May has made her position as clear as mud on the issue. So the falls in GBP/USD were a USD move, as a simple sense check shows the moves came about with EUR/USD under pressure and USD/JPY on the rise.
We can see that despite the USD and ‘real’ yields moving higher that U.S. financial conditions still improved and become more accommodative, with the Bloomberg financial conditions index gaining 31% and is eyeing a break of the 13 March highs. Again, Bill Dudley’s address on Friday (07:30 AEDT) with a speech titled “The importance of financial conditions in the conduct of monetary policy” seems important and one can make an assumption that USD longs into this speech make sense.
The commodity rally hasn’t been confined to oil, with solid buying in copper (+1.3%), spot iron ore (+0.5%), while Dalian bulks have been well bid, with iron ore, steel and coking coal gaining 3.2%, 2.2% and 2% receptively. BHP’s ADR is largely unchanged, so given our ASX 200 opening call sits at 5842 one can expect gains in the banks. The ASX 200 financial sector is key then and is only 0.5% away from breaking through the highs set on 10 March, where a break takes the index to the highest levels since April 2015.
If the ASX 200 can unwind at 5842 then this is clearly the ‘must watch’ chart of the day as it will go a long way to understanding just how much conviction the bulls have here and a close through 5833 would be positive and suggest 6000 is actually a possibility. Fundamentally, we should ask whether investors are prepared to pay up for a market trading on 16.1x consensus forward earnings. I suspect they are, and although this is above the long-term P/E average it is not at genuinely worrying levels. Give me a market trading on 17x forward earnings with few catalysts and I will have far greater convictions to hold shorts, notably when the bears start to have a greater say.
