The highlight through Asia yesterday was the launch of CBoE Bitcoin futures and this seems to have gone away without any major hiccups, and the wash-up is that a wave of short sellers hasn’t hit the market and we see firmer Bitcoin futures and a new all-time high in the Bitcoin price.
One suspects this coming Mondays CME futures launch will attract a touch more liquidity, and that is exactly what the futures market needs right now; liquidity. Liquidity reduces the bid/ask spread. A richer and fuller order book means price moves are far less pronounced, which in turn would result in lower implied volatility, which can result in a lower initial margin and would increase the appetite for the product from hedge funds and alike. Many of whom use volatility to assess the potential duress in their portfolio. So the futures launch is a small, but significant step forward in the evolution of Bitcoin and crypto-trading more broadly, but there is still far more to be done and many risks along the way and one should be paying close attention to any regulatory developments in Korea as a potential headwind.
(Daily chart of Bitcoin)
Back in more mainstream and certainly liquid markets and we can see another day where the bulls have steered the ship and the slow grind higher in risk continues. In equity markets, it’s been a relatively tough night for European markets, where the German DAX has seen a slow grind lower through the session to close -0.2%. We really need to see a close through and above 13,210, as this index is range trading between 13,200 and 12,900 at present and has been since 10 November. A closing break of 13,200 should result in a re-test of the November highs and perhaps higher, so until I am happy to stand aside or would look to continue trading this range. Perhaps we get the clarity equity traders crave after this Thursday’s ECB meeting. However if we focus on the options market, where 1-week implied DAX volatility gives us an implied move in the German index (through to the end of the week) of 166 points (in either direction), so no one is expecting fireworks. That said, a 160 odd point upside move takes us through this recent ceiling and would set the bulls up for a bullish run into year-end.
It’s been a fairly quiet session in US equities with limited economic data to impact and most of the focus from the press on the failed New York terror attack. Volumes have been poor (22% below the 30-day average on the S&P 500), but that said the S&P 500 has further re-establish its bullish trend and long positions continued to be favoured here, with a view to close out on moves back below 2624. Tech has again been the place to be, and this has resulted in a more pronounced gain in the Nasdaq 100 (currently +0.7%). We can also see good bids in energy and telco’s, with materials and financials flat on the session. Energy is finding inspiration from a strong move higher in Brent crude (+1.9%) and US crude (+1.1%), with Brent the prominent driver after news broke that the Forties Pipeline System, which pumps some 400,000 barrels a day to a key export terminal in Scotland, was to be taken down and repaired after a crack was found. A widening Brent and WTI crude spread also incentives US oil exporters to be more active.
In FX markets there has generally been quite tight ranges traded in G10 FX, with the USD index trading -0.1%. There has been limited moves in US fixed income, although some selling has been seen in the front-end, with two-year Treasury pushing a couple of basis points to 1.81%, which has flattened the yield curve a tad. It’s all been about the NZD though, with the market signalling they have a lot of time for Adrian Orr’s appointment as the new RBNZ governor. The bigger move seen in the ‘bird’ has been against the GBP and Scandinavian currencies and while AUD/NZD has had the smallest percentage move of the NZD crosses, it is getting some increased attention. Watch the session close here, as a daily close through NZD1.0897 should open better downside, but this pair is trending lower and in the battle of the antipodeans New Zealand has the edge right now.
AUD/USD has seen a touch of buying through US trade, hitting a session high of $0.7546, but rallies are a gift at present and sellers are kicking in here. The weekly chart tells an interesting story and gives a good perspective and for those in short positions it is a pivotal week for the pair. On one hand, we have seen a bearish outside week reversal, with price trading above the prior week’s high of $0.7644 and closing firmly below its low and this itself shows the bears wrestled back all the control. So a weekly close below $0.7501 confirms this bearish weekly reversal and suggests a firm continuation of this trend lower. This development would also take the pair through the 2016 uptrend, which would also throw weight that the pair is due to head towards 70c in the coming months despite being a touch oversold. On the docket today we get NAB business confidence and the Q3 house price index (+8.8% yoy), although I am hesitant to believe these data points move AUD/USD more than 5-10 pips. It’s really all about US CPI (00:30 aedt Thursday) and the December FOMC (06:00 aedt again, Thursday) and to an extent November Aussie jobs report (Thursday 11:30 aedt).
Aggregating all the news flow and we can see Aussie SPI futures catching a bid through the US trading session and currently sitting up 12-points at this juncture. Our opening call therefore for the ASX 200 sits at 6012 and once again we focus on whether the Aussie index can actually close above the 6000 level. Energy naturally has a tailwind, while materials have the bonus of a stronger copper price, while iron ore, steel and coking coal futures have all seen strong upside moves overnight. Spot iron ore has closed 0.8% lower, but BHP’s ADR suggests the stock should open 1.3% higher. ASX financials are missing a catalyst today, so it’s hard to get excited about the index if the banks are not firing.
Keep an eye on China and Hong Kong equity markets too, as after the close we saw strong November credit and financing data (new yuan loan printed an above-consensus RMB1120 billion), which will lift sentiment and give a further tailwind to yesterday’s news that Chinese banks are expected to see a 6.61% rise in net profits in 2018, up from 4.3% in 2017. 

Originally published by Chris Weston, Chief Market Strategist, IG