8@eight: ASX set to return with strong open
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1. Wall Street’s strong earnings half-life growing shorter and shorter: After the bell Monday, tech giant Google reported a meaningful beat on revenue forecasts. An initial rally on Tuesday morning quickly fizzled out and both GOOG shares and the broader indices were back in retreat. Before the New York open this past session, report that Twitter had turned profitable again earned an initial jump in the stock before it quickly dove. The lifting capacity of this popular social media company earned little enthusiasm for the Nasdaq or SP 500.
We are still facing more FANG responses over the next 24 hours (Facebook reports after the Wednesday close and Amazon at the end of Thursday), but the market’s expectations have already been shaped. Earnings simply cannot inspire this market and/or there is a building anxiety amongst investors that is too imposing for accounting engineered returns to offset. With monetary policy and trade wars still drumming in the background, there lingers a considerable risk that bears may be incited to act. Should the SP 500 drop 2,600, the Dow fall below 23,400 or Nasdaq clear 6,400 traders should be on high alert. Technicals will not secure the turn of a nine-year trend, but it can open a rift through which fundamental fears escalate.
Replay
1. US Dollar progress comes to a point of real decision-making: We have been keeping tabs on the acceleration of the Greenback’s rally through the second half of this past week and into the opening stage for the current week. We have registered clear, favourable breaks for the benchmark currency for pairs like USD/JPY, GBP/USD and AUD/USD. However, as technical traders well know, the opportunity is in the follow through and not the technical break. That said, the ICE’s trade-weighted DXY Dollar Index is in something of an ambiguous position.
Monday’s close was the highest since January 17, so it could be said that we’ve witnessed a break. The trendline of lower highs stretching back to March 2017 and the former support from February 2015 through January 2018 (having turned to new resistance) have also been cleared with the recent charge. And yet, Tuesday didn’t rouse the expected follow through on a break for the index (there is another confluence of resistance around 91.20) and EUR/USD never made its critical break having held 1.2175/35. To clear up any ambiguity for bullish intentions, we need a clear fundamental motivator. Data like the US consumer sentiment stats on Tuesday, another test of 3.00% on the 10-year Treasury yield and President Trump’s optimism for trade deals to alleviate the pressure he has arguably instigated are not enough to drive the bulls.
2. The ECB’s policy decision is important for the Euro and the global markets: There is little doubt that the European Central Bank (ECB) rate decision later today will be a particularly important event for the Euro. The market’s have gone to remarkable lengths to speculate on the timing of the inevitable first step to normalise its extremely dovish policy mix with either a rate hike or asset sale from the balance sheet. Those moves are far off – mid-2019 for the former and two years out for the latter on optimistic time frames – but the markets operate on a speculative basis. We price in now what is expected with a certain degree of confidence will be realised later (the ‘buy the rumour’ aspect of the famous saying).
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