Summary:
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US indices firmly higher ahead of cash open
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Trump hints at US-China breakthrough
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PPI rises inline with forecast
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US100 breaks above 6800 and above H1 cloud
The sentiment around stock markets seems to have improved markedly in the last 24 hours after an attempted break lower yesterday was met with a fairly strong rebuttal. The US500 took out the October low of 2603 as things looked set to go from bad to worse, but buyers stepped in aggressively and managed to end with a green daily candle. This false break accompanied with a bullish hammer is a clear positive development and while it would be premature to declare that we are out of the woods just yet, the mood is decidedly more upbeat.
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The US500 made what looks like a false break lower beneath 2603 yesterday and with a bullish hammer printed on the daily chart there could now be a push back higher. Source: xStation
The newsflow today also seems to have turned more positive with early reports that China are willing to lower tariffs on US cars seeing stocks in Europe and the US react positively before a Trump tweet in the past hour sent them up to their highest levels of the week. The message on social media from the US president claimed that conversations with China were “very productive” and suggested that there could be some confirmation in the not too distant future. This still is some way short of a sure thing but traders clearly feel that there is something in it and with bears failing to push home their advantage yesterday, it is now the chance of the bulls to see if they can make this move stick.
Trump’s tweet strongly hints at positive developments on the trade front with China and has boosted stocks to their highest level of the week. Source: Twitter
On the data front today the only real release of note is the PPI for November which increased by 2.5% Y/Y as expected. This was a fair size decline on the 2.9% seen last time out. Stripping out food and energy to arrive at a “core” reading, and it looks a bit more inflationary with a reading of 2.7% Y/Y compared to 2.5% expected. From the report: "Most of the November advance in prices for final demand services can be traced to margins for fuels and lubricants retailing, which jumped 25.9 percent," the report says. "The indexes for health, beauty, and optical goods retailing; cellular phone and other wireless telecommunications services; airline passenger services; food wholesaling; and truck transportation of freight also moved higher."
PPI pulled back a little in the latest release but the core reading rose further. Both remain close to recent highs. Source: XTB Macrobond
The PPI data rarely has a tangible impact on the markets but tomorrow’s CPI can, and along these lines it will be interesting to see how that release comes out. With next week’s Fed meeting approaching inflation is coming to the front of mind for the markets and hedge fund manager Paul Tudor Jones had some interesting comments on this during an interview yesterday. PTJ pointed out that the Goldman Sachs commodity index was down by 15% over the past 40 days and that meant a “deflationary impulse” right before the decision. Tudor Jones believes this will weigh on Fed thinking and that while they will likely hike next week they won’t at all in 2019 which could provide big upside for equities.
The US100 has enjoyed a strong push higher today and in doing so moved above the H1 cloud. Price is not far from receiving confirmation from the accompanying lines and the past 2 occasions this has happened led to sustained moves in that direction. Source: xStation
