8@eight: ASX set to open higher as markets on autopilot; Aussie gains

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This was published 6 years ago

8@eight: ASX set to open higher as markets on autopilot; Aussie gains

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By John Kicklighter
Updated

Despite risks from potential market-moving events over the past 24 hours, ranging from a Fed rate decision to British GDP figures to the local update on consumer inflation, the markets remain on autopilot.

The trading session for global equities overnight either saw moderate movement within broad ranges like the ASX, or were simply drained of life as was the case with the S&P 500. Locally, the market is set to open higher, with ASX futures up 6 points.

The volatility measures, however, stay the most black- and-white reminders of the extreme degree of quiet currently plaguing active traders looking for opportunities. The lack of activity is present across virtually all assets - currencies, commodities, fixed income and shares.

However, it is the volatility index VIX that continues to act as the favourite whipping boy of speculators' lament. The index dropped as low as 8.8 on Wednesday in New York and closed out at 9.6 – that is now 10 straight days below 10, a level considered an extreme threshold.

1. Wall Street: The benchmark US equity indexes closed their session with gains – but the progress was technical at best. There is no conviction in the climb.

The day's range for the S&P 500 was extremely small – as a percentage of current spot price it accounted for only 0.28 per cent, which is in the lower extreme of inactivity for the index that we have seen over the past years. Furthermore, the rise that we have seen has further lost conviction via statistical measure. Looking at a comparison of the average of the past five days' trading range (ATR) to the past 20 days, we find the second steepest deceleration in five years.

That doesn't bode well for bulls looking to the next leg higher. Meanwhile, the fading conviction in the Nasdaq's move is even more severe. The after-hours earnings report of Facebook looks like it could have helped some of the drift that followed Google's report, but the initial reaction was a surprise drop on what was a better-than-expected result. While Facebook shares regained in after-hours trade, it suggests sentiment in the tech sector particularly may not be so sanguine

2. Fed holds rates: As expected, the Federal Reserve held its benchmark rate unchanged at a range of 1.00 to 1.25. Given all of its four rate hikes have occurred on what are considered 'quarterly' meetings – the last three successive quarters – it was highly unlikley that Fed was willing to deliver any surprises and further volatility to the financial system. In the statement that accompanies decisions and has in become a speculative highlight all its own, the central bank did little to clear up the skepticism surrounding its forecast for another rate hike in the second half of 2017. That wouldn't be where the market is looking for dollar guidance regardless. The focus is on the trailblazing effort to implement a normalisation policy – to start selling off its massive balance sheet. The Fed repeated that it expects to impliment the program it laid out last month 'relatively soon.' Global investors should watch the progress of this move. Given the dependency of speculators on the massive central bank support over recent years, the tipping point for complacency may be much closer than many are aware.

3. Aussie inflation doesn't dampen speculation: There is considerable speculation behind the Aussie dollar's outperformance these past weeks. While there have been some encouraging economic data from the local economy and encouraging updates from China, the currency's rise against the greenback seems too remarkable given the inputs. A key part of its performance is a swell in carry trade appetite that has also shown through in two other popular and liquid carry currencies: the New Zealand and Canadian Dollars. All have risen risen significantly against their more liquid counterparts, with an added intensity following the Bank of Canada's rate hike. While the RBA has shown little appetite so far for that first rate hike, the markets remain unperturbed on their speculative views. The inflation figures for the June quarter coming in below the central bank's target range put some statistical weight behind skepticism, but the appetite for returns remains.

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4. Bitcoin: The market's favourite cryptocurrencies have lost the wind behind the epic advances they staged through May and June.In the absence of a clear direction remains the unchecked danger of volatility. What we have now is the hallmark of speculators taking the reins. Headlines will continue to spur abrupt moves, but until we get back to clear discussions of Bitcoin being accepted at a government level in a major financial hub – or being threatened by regulation – expect volatility without reliable trend.5

5. Australian dollar: Next to the New Zealand Dollar and the Norwegian Krone, the Aussie Dollar was this past session's strongest performer. Given the standings of the aforementioned three at the top of the charts and the dollar and franc at the lower end, it seemed the markets were following their appetite for yield in currency performance. Yet, given the strained backdrop for this reach in equities and other asset classes, we shouldn't put too much expectation on this particular motivation for trend.

6. Local sharemarket: The ASX continues to trade in the broad range it has carved out over the past two months. Even for those that don't consider themselves primarily technical traders, it is hard to miss the right shoulder that this congestion is posing in a broader head-and-shoulders pattern throughout 2017. A break of 5,650 could pose a very dramatic shift in priorities, so traders be wary.

7. Commodities: The big names in commodities have lost some of their lustre. Oil's remarkable break and climb on Tuesday was throttled this past session with limited speculative ambition to its projection. Gold moved up to a new six-week high, but it was copper that continues to steal headlines. The incredible surge to 2-year highs has extended to this past session and the remnants of the failed head-and-shoulders pattern still echos on the charts. The spot price of iron ore topped $US70 a tonne at its Wednesday setting, bolstered by a report that Chinese officials are going to crack down on low-tech steel mills.

8. Market highlights:

SPI futures up 6 points or 0.1% to 5723

AUD +0.7% to 79.95 US cents (Overnight range: 0.7878 - 0.8014)

On Wall St, Dow +0.5%, S&P 500 flat, Nasdaq +0.2%

In New York, BHP +1.4%, Rio +0.2%

In Europe, Stoxx 50 +0.5%, FTSE +0.2%, CAC +0.6%, DAX +0.3%

Spot gold +0.5% to $US1255.82 an ounce

Brent crude +1.5% to $US50.97

US oil +1.8% to $US48.74 a barrel

Iron ore +1.4% to $US70.43 a tonne

Dalian iron ore -0.6% to 523 yuan

LME aluminium +0.6% to $US1942 a tonne

LME copper +1.7% to $US6330 a tonne

10-year bond yield: US 2.29%, Germany 0.56%, Australia 2.73%

This column was produced in commercial partnership
between Fairfax Media and IG

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