Market Shrugs Off Latest US Tariff Provocation

The S&P 500 gapped higher yesterday and closed on its highs. It entered a gap that had been created by last Wednesday's lower opening. The gap extends to last Tuesday's high near 2681.10. A close above here would lift the technical tone and could set the stage of a run at 2761 where the 200-day moving average is found. Recall that before the weekend the S&P 500 gapped lower too and yesterday's gap higher, make Friday's price action a bullish one-day island. Yesterday's gap is found roughly between 2647.5 and 2650.   

Asia-Pacific

New Zealand reported a larger than expected October merchandise trade deficit of NZ$1.295 bln. The increase in exports was a little less than expected, while the rise in imports was a bit more than expected. The 12-month rolling deficit widened to NZ$5.79 bln from NZ$5.33 bln, which is the largest in at least a decade. The New Zealand dollar extended yesterday's losses marginally and then recovered in Asia and through the European morning to retest $0.6800. The New Zealand dollar has not risen above the previous session's high since November 16 when it reached almost $0.6885.  Yesterday's high was near $0.6815.  For its part, the Australian dollar is confined to yesterday's range and continues to consolidate between $0.7200 and $0.7300 as it has done for over a week. That said, it is holding up well in the face of the sharp drop in iron ore prices and weakness Chinese equities, both of which many observers link to the Australian dollar. 

The dollar is steady against the Japanese yen near yesterday's highs around JPY113.50. There are two sets of expiring options that are of note today. There is a $450 mln option at JPY113.45 and $485 mln at JPY113.10. The intraday technical readings are stretched, suggesting resistance near JPY113.70 may remain intact.  

Europe

ECB's Draghi used his testimony before the European Parliament to reiterate the central bank's stance.  Despite the slowdown that is more than expected and the prognosis for falling inflation in the coming months, the new asset purchases will cease at the end of next month. Draghi continues to cite domestic demand and wage growth to lift prices. This suggests that the ECB may retain a balanced risk assessment at next month's meeting. A change toward recognizing downside risks would be seen as dovish. At the same time, Draghi recognizes that extraordinary monetary policy is still required and all the other policies but the asset purchases are set to continue to some time.  It is possible that the ECB provides another Targeted Long-Term Repo Operation (TLTRO), which may be deemed necessary before a rate hike can be delivered. 

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Read more by Marc on his site Marc to Market.

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Marc Chandler 6 months ago Author's comment

Yes. Thank you. Deflation in goods and maybe not all goods but some. Not services, and as you know American households spend more on services than goods. Also, if inflation/deflation refers to general price levels, the idea that US auto sector has excess capacity could be expressed as a relative price change rather than general price change.

Kurt Benson 6 months ago Member's comment

Nicely done.

Gary Anderson 6 months ago Contributor's comment

With capacity utilization under 80, to say the US has excess capacity is a warning of deflation, Marc.