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Weak Dollar Helping the Recovery in Commodities and Global Equities

Thursday,September13, 2018, 10:46 AM, EST

  • NASDAQ Composite+0.93%Dow+0.72%S&P 500+0.53%Russell 2000+0.25%
  • NASDAQ Advancers:1390Decliners:720
  • Today's Volume (vs. yesterday)+8.3%

Following yesterday's mixed performance the markets opened mostly higher this morning. The Technology sector is back in the lead with a 1.2% gain while Consumer Staples fall 0.7% and gave back some of yesterday's gain. Market sentiment got a boost on word that the Trump administration has invited China back for more trade discussions, and also Turkey's Central Bank hiked repo rates which is helping to stabilize the lira. The dollar index is down 0.4% on soft inflation data, and that combined with a stable lira is taking some pressure off of emerging markets. Treasuries yields are slightly higher, gold (+0.4) is up for a third day, and WTI crude slips 1.4%.

  • Yesterday's data reflected softness in Producer Prices and today we see the same thing in Consumer Prices. Top line CPI held steady in August at +0.2%, but analysts were expecting +0.3%; stripping out food & energy, prices rose just 0.1% in August but that is down from July and below consensus. Year over year top line CPI dropped from 2.9% in July 2.7%, and ex-food/energy fell to 2.2% from 2.4%. Apparel and medical care costs fell, automotive costs held steady and airline costs increased. Personal Consumption Expenditures (PCE) is the Fed's preferred inflation measure and it gets updated on September 28th. In the meantime the market still assigns a 97% chance of a rate hike later this month and about 95% for two hikes by year-end.
  • Crude oil prices eased this morning after gaining in the prior two sessions. In its Monthly Oil Report the IEA highlights global supply rising to a record 100m bpd in August. OPEC accounts for much of the surge despite falling output from Iran and Venezuela while non-OPEC production also rose due to 'record output from the US.' Although global demand growth remained steady the report noted that OPEC has just 2.7m bpd in spare capacity that could be easy go online, most of which is with Saudi Arabia. This latter part is why some say the oil market is unprepared for some sort of disruption.
  • This probably doesn't come as a surprise…a survey conducted by AmCham China finds that two-thirds of US companies doing business in China say tariffs have hurt their business. Respondents consisted of 430 firms in the retail, food and manufacturing sectors with nearly half indicating costs have risen while demand has decreased. About half say their businesses have been subject to more subtle retaliatory action such as delayed custom clearance and more inspections, but only six percent say they would even consider moving their operations to the US. This survey results were reported in the Washington Post.

Technical Take: Weak Dollar Helping the Recovery in Commodities and Global Equities

Softer PPI and CPI data in the US, optimistic economic commentary by the ECB's Draghi, and reports of the US reaching out to China on trade are helping to drive weakness in the US dollar and a rally in commodities and global equities. While the world's reserve currency remains within the recent consolidation range, the dollar's correction could be deeper over the intermediate term which would provide relief to many inversely correlated assets that have been meaningfully underperforming in 2018.

The EURUSD currency pair is attempting a breakout from a four month "head & shoulders" bottoming pattern.

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Spot gold formed a bullish "piercing line" pattern at its YTD lows made just last month when weekly RSI was deep oversold at 24. After a modest two-week pullback, gold is this week forming a large "bullish engulfing" pattern.

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In China the Shanghai Composite (SHCOMP) and the Hong Kong Hang Seng Index gained 1.2% and 2.5%. In last month's daily MID BLOG we highlighted the potential bottoming signals being made by the SHCOMP over multiple time frames which have not yet been negated. Meanwhile the Hang Seng Index is one day removed from its YTD lows and a 22% decline from the January high. However today's 2.5% rally is forming a textbook "dragonfly doji" pattern on the more important weekly frame, along an expected support line. Continued strength tomorrow would morph into a bullish "hammer" pattern.

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While it is far too early to declare a bottom in all of the above, they are plenty of signals which indicate we could be in the early stages of a longer recovery.

Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is Associate Vice President on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.