News & Analysis

Stocks finish in the black despite higher Yields; Oil above 71.50; USD fades – AUDUSD back above .7500

May 17, 2018 | Daily Market Outlook

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US markets – closed higher on Wednesday helped by better than expected corporate earnings. The Dow Jones added 62.52 points – the S&P500 added 11.01 and the NASDAQ closed 46.67 points higher. Nike was the best performing Dow stock overnight and Macy’s share price jumped by 10.8% after post a much better than expected earnings figure. Macy’s CEO Jeff Gennette said Wednesday in a statement the company saw “continued healthy consumer spending,” noting it contributed to the company raising its fiscal full-year guidance for earnings and revenue. Macy’s figures and surge boosted the broader retail sector. The SPDR S&P Retail ETF (XRT) jumped 1.6 percent on Macy’s move, its biggest one-day move since April 10.

US Treasuries did hit new highs last night but failed to worry the markets like we saw on Tuesday. Tom Essaye, the founder of The Sevens Report, said the rise in yields coupled with a surging dollar caused “causing a natural digestion given the near-6% straight-line rally in stocks over the past two weeks.”

The yield on the 10-year Treasury note hit a new multiyear high Wednesday, topping 3.1 percent for the first time since July 8, 2011. The two-year Treasury note yield also notched a new multiyear high of 2.593 percent, it’s highest since August 11, 2008.

Europe – traded choppy on Wednesday with Italy sending stocks and the EURO lower. Markets did recover to close higher by the end of the session. The FTSE added 11.22, the DAX added 26.29 and the CAC closed 14.39 points higher. Inflation numbers in Germany fell by 0.1 percent in April from the previous month, creating more headaches for the European Central Bank. The main story in Europe continues to be Italy. Italy’s right-wing Lega party denied reports that it’s seeking a 250 billion euro debt write-off. Italian bond yields hit 10-week highs.

Oil – traded in a quieter session till early in the NY session. Buyer’s emerged after the EIA data showed U.S. crude inventories dropped by 1.4 million barrels in the week to May 11, to 432.34 million barrels. USOUSD closed at $71.58. A move to keeps bullish momentum alive. Buyers have tested $71.87 this morning.

ANZ said the falling U.S. inventories were “raising concerns of tight markets heading into the U.S. driving season,” during which demand typically rises. U.S. bank Morgan Stanley said it had raised its Brent price forecast to $90 per barrel by 2020, due to a steady increase in demand. But some analysists are still concerned about rising US output.

Forex – the EUR was slammed for a 2nd day as Euro zone inflation slowed in April combined with issues in Italy. The EUR traded sharply lower to the USD, GBP and JPY. But it did pare losses in the NY session to the JPY and USD. The USD fought hard through the London session and early into the NY session before sellers took over. The USDCAD ended up trading 85 pips lower. The AUD held it’s line throughout most of the day really running its own race ignoring heavy selling of the EUR and GBP at times during late into the London session. Once the USD turned it closed back above .7500 adding 48 pips.

The JPY retreated into the NY session, majors all made gains, the EUR sharply paring early losses. Gold added 1.10 after trading up to $7 higher during the day. Gold traders appeared very edgy after Tuesday’s sell-off.

Good trading from Eightcap.

Sources; CNBC All times are AEST

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