Last night’s ramp job on the back of USDJPY, which sliced through the 100 and 200-day moving averages like they weren’t there, took ES most of the way. The 4% GDP (ex-items?) print did the rest. ES is sitting at an 8-pt gain prior to the open.
Caution is warranted, as yesterday’s close marked the 3rd H&S Pattern in a row to complete without playing out (so far.) The USDJPY/NKD ramp is BS, of course, as Japan’s industrial production fell 3.3% last month (versus 1.2% expectations.)
Still, the pair broke out. If it can remain above the SMA200 long enough for the other averages to turn up and break the bearish alignment, it could drag stocks higher. And, why shouldn’t it? With the BOJ depressing the yen and actively buying stocks, it’s only a question of whether or not it fits their plans.
Isn’t the likelihood of higher interest rates in the US, thanks to the strong GDP, going to be the driver of the stock market now, rather than the Yen carry trade? Stocks don’t seem to like this mornings number.
Higher interest rates would certainly work against intrinsic valuations, as future cash flow is discounted at a higher rate. And, in the era of QE, higher GDP means less Fed support. So, that’s working against stocks too (though one would expect earnings to increase if GDP is truly improving.)
Lately, though, all that matters is the algos. As long as overall volume is this low, it remains ridiculously easy to manipulate the market through the USDJPY, NKD, VIX, EURUSD, AUDUSD and bond futures. Lately, fundamentals, economics, etc don’t have anywhere near as much influence.