The Daily Fix - a stealth climb but new highs for US equities are in play

The NAS100 clearly has momentum working in its favour and the risk is we see 18,400 emerge in the near-term, while small caps shine, with the Russell 2k outperforming once again, and while it doesn’t feel like many are truly chasing this move, the risk vs reward trade-off suggests being long and playing for new highs as the right play. 

While it was only REITS that didn’t fully participate – in a move where breath was sharp with 76% of stocks on the S&P500 closed higher - it was the tech that really drove the move, with Nvidia closing at $921, and the bulls will be eyeing a retest of $975. Meta eyes a close of the 24 April gap into $484.58, and I suspect it gets there, while Amazon continues its ascent with a 1.3% rise. Tesla looks less convincing on the daily chart and needs more work to have the momentum traders adding real length, but many will take another 2% gain. Banks have participated, with the XLF ETF +1.3% and on the small/regional bank side, the KRE ETF closed +0.8%, showing no real concerns to the SLOOS report (Senior loan officers survey) which showed 15.6% of responding banks saw tighter lending conditions in Q1. 

Rates and bond markets have had a quiet day at the office, with yields little changed across the Treasury curve, and despite speeches from Fed members Barkin and Williams, we see 46bp of cuts priced by December, and the September FOMC meeting still the expected start date for the Fed to cut. That said, cutting rates in the meeting before a US Presidential election has never occurred before, so this could be new territory, and could do so to deafening cries of a ‘politicized Fed’.

Commodity markets have been well traded, where crude has reacted modestly to headlines on the geopolitical front – Brent traded into $83.80 on several occasions but saw supply kick in and traders were willing sellers here. Silver captured above-average client flow, which is unsurprising given the 3.3% rally on the day into $27.44, while gold sits at $2325 and has scope to push back into the 26 April highs of $2352, which may act as small resistance for the ultra-short-term traders to look at – a close through here and the prospect of a trend move into $2400 naturally increases.

Looking at the options market Gold 1-week put volatility trades at a modest 0.26 vol premium to calls – essentially, the options market sees the risk in price as finely balanced in the near term, and there is no immediate skew to where traders see the greater directional move playing out. It suggests many will be looking to fade rallies in XAU into $2350 – levels to put on the radar. 

In FX, the lack of move in the US bond market has held FX volatility back and given traders a chance to regroup and review. USDJPY has seen some kickback after the recent solid declines and saw good sellers into ¥154.00. LATAM FX saw some love, with the MXN and CLP working well, with signs that perhaps carry traders could be cautiously putting on positions again. 

The AUD has held in well, and becomes the currency du jour today, with the RBA meeting and Statement on Monetary Policy in play at 14:30 AEST – Aussie swaps price 3bp of hikes for today’s meeting, which feels fair, while the tone of all guidance will be reconciled vs the August pricing, where we see 12bp priced – or a 50% probability of a hike. The RBA is therefore expected to lay out that roadmap to hike, and that needs to meet market pricing or we could see a quick move lower – although that feels unlikely, as the RBA should almost certainly lift its inflation forecasts for the June and Dismember ’24 quarter and with that justifies a modest hawkish shift. 

Asia equity should get off to a strong footing, where Japan comes back online, and plays catch up with a 1.7% rally on open expected. The ASX200 looks set for a 0.5% rise on open, with BHP likely to open 0.2% higher, with the focus on ANZ who have joined the party with a lofty $2b buy-back, although on first blush the cash earnings seem underwhelming.