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RBA Drops “patience” to Send the Aussie Higher

Overview:  The Reserve Bank of Australia hinted that it was getting closer to a rate hike.  The Australian dollar was bid to its best level since the…

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2 years ago

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Overview:  The Reserve Bank of Australia hinted that it was getting closer to a rate hike.  The Australian dollar was bid to its best level since the middle of last year.  Australian stocks advanced in a mixed regional session while China and Hong Kong markets were closed for the local holiday.  BOJ Kuroda called the yen's recent moves "rapid."  The yen is sidelined today as the dollar weakens against other major currencies, led by the Antipodean.  In addition to the yen, the Swiss franc and euro are also among the laggards.  European equites have edged higher and the Stoxx 600 is at its best level since mid-February.  US futures have turned lower in the European morning.   The US 10-year yield is around five basis points higher at 2.45%.  European yields are mostly 5-10 bp firmer.  Gold is quiet in a $1925-$1934 range.  May WTI is extended yesterday's 4% advance to add more than 1% to probe the $105 a barrel level.  It finished last week near $99.25.  US natgas is up almost 2.7% and is approach the $6 level.  It has only fallen in one week since the Russian invasion of Ukraine.  Europe's benchmark is almost 3% lower (-0.3% yesterday) after jumping almost 12% last week.  Iron ore is higher for a third sessions, while copper is up oalmost 1% after yesterday's 2% advance to trade at new four-week highs.  May wheat is up 3.2% on top of yesterday's 2.6% gain. It fell near 10.7% last week.  

Asia Pacific

The Reserve Bank of Australia dropped its reference to being patient and this was all the encouragement the market needed.  The Australian dollar rallied, and local rates jumped.  The cash rate futures now fully imply a hike in June.  Yesterday, there was only an 80% chance discounted.  The upcoming inflation and next month's wages are still important pieces of the policy puzzle.  A move in June would come after the election which must be held by late May.  Separately, the preliminary service and composite PMI were revised lower and now show a decline from February.  The service PMI was revised to 55.1 from 571 and 57.4 in February.  The final composite PMI is at 55.6, down from 57.9 flash reading and 56.6 in February.  

While the pandemic and earthquake hobbled the Japanese economy in Q1, the groundwork for a recovery is becoming clearer.  Labor cash earnings were twice as strong as the median forecast in Bloomberg's survey projected, rising 1.2% in February and the January series was revised higher (1.1% from 0;9%).  Rising inflation meant that in real terms there were unchanged.  The median forecast looked for a 0.7% drop.  The preliminary March service PMI was revised higher from 48.7 to 49.4, while the final composite reading edged above the 50 boom/bust level (to 50.3 from 49.3 and 45.8 in February.  

Last week, the Japan's Minister of Finance suggested that impact of the yen's weakness should be reviewed.  We suggested that it was a small first step on the intervention escalation ladder. Earlier today, BOJ Governor Kuroda took another small step and characterized the recent moves as "rapid."  This reinforces our sense that the JPY125 area marks the upper end of a new range for the dollar.  Our first stab at the lower end of the range is around JPY121.00 but it might extend into the JPY119.50-JPY120 area.  

The dollar is trading quietly against the yen today, mostly within yesterday’s JPY122.25-JPY123.00 range.  We are more inclined to see the greenback trading lower in North America and re-test the lows.  The consolidative phase in Australian dollar has ended with the surge to almost $0.7640 today.  It has surpassed the $0.7610 area, which represented the (61.8%) retracement of the decline since from the February 2021 high slightly above $0.8000 to the late January low near $0.6980.  The next important chart area is in the $0.7675-$0.7700 area.  With China's mainland market still closed, the offshore yuan continues to trade quietly.  It was largely confined to yesterday's range and is virtually unchanged since the weekend.  

Europe

The final eurozone PMI readings were mixed.  There was something for everyone.  The German readings were revised higher.  The March service PMI stands at 56.1, up from the 55.0 flash reading, and an improvement for the 55.8 February report.  The composite is at 55.1 rather than 54.6, but still a little softer than the 55.6 in the prior month.  French readings were little changed.  Services were unchanged at 57.4, but the composite was revised to 56.3 from 56.2 after 55.5 in February.  Italy's service PMI was stronger than expected at 52.1 compared with 52.8 in February.  The composite was spot on with expectations at 52.1 (down from 53.6).  Spain disappointed.  The service PMI fell to 53.4 from 56.6 and the composite stands at 53.1 vs. 56.5 previously. The net result was that the aggregate service PMI stands at 55.6, up from the 54.8 flash reading and a touch better than the 55.5 February report.  The composite was revised to 54.9 from 54.5 but still a little softer than February's 55.5.  

The UK PMI was revised higher from the preliminary estimates.  The service PMI stands at a lofty 62.6.  The flash report has shown improvement to 61.0 from 60.5 in February.  The composite stands at 60.9 compared the 59.7 preliminary estimate and 59.9 in February.  It is the strongest since last June.  The details were a little disconcerting.  While output prices rose to a new record high, business optimism at a 17-month low.  Next week, the UK reports inflation and employment figures.  

The euro posted a key reversal last Thursday, turning back from a four-week high near $1.1185 and settled below the previous day's low.  Follow-through selling saw it test support near $1.0960 yesterday.  It is consolidating today in narrow quarter-cent range below $1.0990.  It takes a move above $1.1015 to stabilize the tone but regaining the $1.1050 area is important to lift the outlook.  Sterling appears to be going nowhere quickly.  It continues to trade in the range set last Wednesday (~$1.3085-$1.3185).  It is trading with a firmer bias today, but is holding below $1.3150, near where it peaked before the weekend.  Elsewhere, we note that the euro is consolidating at four-week lows against the Swiss franc.  It needs to regain a foothold above CHF1.02 to stabilize the tone.  A double top may have been carved that projects toward parity.  The rise in sight deposits reported yesterday is consistent with SNB intervention.  Lastly, with Orban securing a fourth term in Hungary, the confrontation with the EU will likely heat-up.  Orban has opposed EU sanctions on Russia but has not vetoed any of them.  Still, there are outstanding issues.  The euro carved a base last week against the forint and now appears set to appreciate against it.  We suspect there is scope of a 3%-5% advance.  

America

The US took another step in weaponizing the dollar to squeeze Moscow.  Russian government accounts will no longer became to make dollar payments through US financial institutions.  The chokehold gets tighter.  Moscow is forced to draw down their dollar holdings that the Russia central bank has, spend its income revenue, which is estimated to be around $1 bln a day, or default on its obligations.  

The US reports the February trade balance.  A small improvement from February should not hide the significant deterioration that is taking place.  The combined Jan-Feb deficit last year was about $132.7 bln.  If the median (Bloomberg survey) projection of a $88.5 bln shortfall is accurate, the Jan-Feb shortfall this year would be a little more than $178 bln, a 34% deterioration.  Canada reports its February goods trade balance.  If the median (Bloomberg survey) is fairly accurate, Canada's Jan-Feb surplus will be a little more than 50% greater than the year ago period.  

The final service and composite PMI and the ISM services are also on tap.  Recall that the flash reports showed unexpected gains.  The service PMI improved to 58.9 from 56.5 and the composite rose to 58.5 from 55.9.  The ISM services ae expected to have improved to 58.5 from 56.5.  Fed Governor Brainard will speak about inflation today (~10 am ET). San Francisco Fed President Daly (who seems to favor a 50 bp hike) and NY Fed President Williams also speak later today.   Recall that the NY Fed President has a permanent vote on the FOMC, and Williams seems inclined to hike by 50 bp too.  

The US dollar is trading at a four-day low against the Canadian dollar near CAD1.2460.  Last week's low, which was also the low since last November, was around CAD1.2430.  A break targets the CAD1.2380-CAD1.2400 area.  That said, we look for a bounce in early North American activity that could see the CAD1.2480-CAD1.2500 area.  Mexico has reinstated gasoline subsidies at states bordering the US after closing them because US drivers were taking advantage of the cheap gas to fill-up.  The peso needs consolidation.  Consider that coming into today, the dollar has fallen for six consecutive sessions against the peso.  Last Monday's greenback gain halted an 11-day slide, the longest in half a century.  The dollar has fallen in every session but last Monday's, beginning on March 11. The momentum indicators are stretched, and the greenback's downside momentum is slowing.  


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Fighting the Surveillance State Begins with the Individual

It’s a well-known fact at this point that in the United States and most of the so-called free countries that there is a robust surveillance state in…

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7 hours ago

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October 23, 2023

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It’s a well-known fact at this point that in the United States and most of the so-called free countries that there is a robust surveillance state in place, collecting data on the entire populace. This has been proven beyond a shadow of a doubt by people like Edward Snowden, a National Security Agency (NSA) whistleblower who exposed that the NSA was conducting mass surveillance on US citizens and the world as a whole. The NSA used applications like those from Prism Systems to piggyback on corporations and the data collection their users had agreed to in the terms of service. Google would scan all emails sent to a Gmail address to use for personalized advertising. The government then went to these companies and demanded the data, and this is what makes the surveillance state so interesting. Neo-Marxists like Shoshana Zuboff have dubbed this “surveillance capitalism.” In China, the mass surveillance is conducted at a loss. Setting up closed-circuit television cameras and hiring government workers to be a mandatory editorial staff for blogs and social media can get quite expensive. But if you parasitically leech off a profitable business practice it means that the surveillance state will turn a profit, which is a great asset and an even greater weakness for the system. You see, when that is what your surveillance state is predicated on you’ve effectively given your subjects an opt-out button. They stop using services that spy on them. There is software and online services that are called “open source,” which refers to software whose code is publicly available and can be viewed by anyone so that you can see exactly what that software does. The opposite of this, and what you’re likely already familiar with, is proprietary software. Open-source software generally markets itself as privacy respecting and doesn’t participate in data collection. Services like that can really undo the tricky situation we’ve found ourselves in. It’s a simple fact of life that when the government is given a power—whether that be to regulate, surveil, tax, or plunder—it is nigh impossible to wrestle it away from the state outside somehow disposing of the state entirely. This is why the issue of undoing mass surveillance is of the utmost importance. If the government has the power to spy on its populace, it will. There are people, like the creators of The Social Dilemma, who think that the solution to these privacy invasions isn’t less government but more government, arguing that data collection should be taxed to dissuade the practice or that regulation needs to be put into place to actively prevent abuses. This is silly to anyone who understands the effect regulations have and how the internet really works. You see, data collection is necessary. You can’t have email without some elements of data collection because it’s simply how the protocol functions. The issue is how that data is stored and used. A tax on data collection itself will simply become another cost of doing business. A large company like Google can afford to pay a tax. But a company like Proton Mail, a smaller, more privacy-respecting business, likely couldn’t. Proton Mail’s business model is based on paid subscriptions. If there were additional taxes imposed on them, it’s possible that they would not be able to afford the cost and would be forced out of the market. To reiterate, if one really cares about the destruction of the surveillance state, the first step is to personally make changes to how you interact with online services and to whom you choose to give your data.

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Stock Market Today: Stocks turn higher as Treasury yields retreat; big tech earnings up next

A pullback in Treasury yields has stocks moving higher Monday heading into a busy earnings week and a key 2-year bond auction later on Tuesday.

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October 23, 2023

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Updated at 11:52 am EDT U.S. stocks turned higher Monday, heading into the busiest earnings week of the year on Wall Street, amid a pullback in Treasury bond yields that followed the first breach of 5% for 10-year notes since 2007. Investors, however, continue to track developments in Israel's war with Hamas, which launched its deadly attack from Gaza three weeks ago, as leaders around the region, and the wider world, work to contain the fighting and broker at least a form of cease-fire. Humanitarian aid is also making its way into Gaza, through the territory's border with Egypt, as officials continue to work for the release of more than 200 Israelis taken hostage by Hamas during the October 7 attack. Those diplomatic efforts eased some of the market's concern in overnight trading, but the lingering risk that regional adversaries such as Iran, or even Saudi Arabia, could be drawn into the conflict continues to blunt risk appetite. Still, the U.S. dollar index, which tracks the greenback against a basket of six global currencies and acts as the safe-haven benchmark in times of market turmoil, fell 0.37% in early New York trading 105.773, suggesting some modest moves into riskier assets. The Japanese yen, however, eased past the 150 mark in overnight dealing, a level that has some traders awaiting intervention from the Bank of Japan and which may have triggered small amounts of dollar sales and yen purchases. In the bond market, benchmark 10-year note yields breached the 5% mark in overnight trading, after briefly surpassing that level late last week for the first time since 2007, but were last seen trading at 4.867% ahead of $141 billion in 2-year, 5-year and 7-year note auctions later this week. Global oil prices were also lower, following two consecutive weekly gains that has take Brent crude, the global pricing benchmark, firmly past $90 a barrel amid supply disruption concerns tied to the middle east conflict. Brent contracts for December delivery were last seen $1.06 lower on the session at $91.07 per barrel while WTI futures contract for the same month fell $1.36 to $86.72 per barrel. Market volatility gauges were also active, with the CBOE Group's VIX index hitting a fresh seven-month high of $23.08 before easing to $20.18 later in the session. That level suggests traders are expecting ranges on the S&P 500 of around 1.26%, or 53 points, over the next month. A busy earnings week also indicates the likelihood of elevated trading volatility, with 158 S&P 500 companies reporting third quarter earnings over the next five days, including mega cap tech names such as Google parent Alphabet  (GOOGL) - Get Free Report, Microsoft  (MSFT) - Get Free Report, retail and cloud computing giant Amazon  (AMZN) - Get Free Report and Facebook owner Meta Platforms  (META) - Get Free Report. "It’s shaping up to be a big week for the market and it comes as the S&P 500 is testing a key level—the four-month low it set earlier this month," said Chris Larkin, managing director for trading and investing at E*TRADE from Morgan Stanley. "How the market responds to that test may hinge on sentiment, which often plays a larger-than-average role around this time of year," he added. "And right now, concerns about rising interest rates and geopolitical turmoil have the potential to exacerbate the market’s swings." Heading into the middle of the trading day on Wall Street, the S&P 500, which is down 8% from its early July peak, the highest of the year, was up 10 points, or 0.25%. The Dow Jones Industrial Average, which slumped into negative territory for the year last week, was marked 10 points lower while the Nasdaq, which fell 4.31% last week, was up 66 points, or 0.51%. In overseas markets, Europe's Stoxx 600 was marked 0.11% lower by the close of Frankfurt trading, with markets largely tracking U.S. stocks as well as the broader conflict in Israel. In Asia, a  slump in China stocks took the benchmark CSI 300 to a fresh 2019 low and pulled the region-wide MSCI ex-Japan 0.72% lower into the close of trading.
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iPhone Maker Foxconn Investigated By Chinese Authorities

Foxconn, the Taiwanese company that manufactures iPhones on behalf of Apple (AAPL), is being investigated by Chinese authorities, according to multiple…

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9 hours ago

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October 23, 2023

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Foxconn, the Taiwanese company that manufactures iPhones on behalf of Apple (AAPL), is being investigated by Chinese authorities, according to multiple media reports. Foxconn’s business has been searched by Chinese authorities and China’s main tax authority has conducted inspections of Foxconn’s manufacturing operations in the Chinese provinces of Guangdong and Jiangsu. At the same time, China’s natural-resources department has begun onsite investigations into Foxconn’s land use in Henan and Hubei provinces within China. Foxconn has manufacturing facilities focused on Apple products in three of the Chinese provinces where authorities are carrying out searches. While headquartered in Taiwan, Foxconn has a huge manufacturing presence in China and is a large employer in the nation of 1.4 billion people. The investigations suggest that China is ramping up pressure on the company as Foxconn considers major investments in India, and as presidential elections approach in Taiwan. Foxconn founder Terry Gou said in August of this year that he intends to run for the Taiwanese presidency. He has resigned from the company’s board of directors but continues to hold a 12.5% stake in the company. Gou is currently in fourth place in the polls ahead of the election that is scheduled to be held in January 2024. The potential impact on Apple and its iPhone manufacturing comes amid rising political tensions between politicians in Washington, D.C. and Beijing. Apple’s stock has risen 16% over the last 12 months and currently trades at $172.88 U.S. per share.  

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