The Fed’s actions continued to reverberate across markets overnight with stocks in the US finding some buyers and putting in a good performance. The US dollar’s weakness also continued lifting the Aussie strongly above 76 cents along with rallies in the euro, yen and other forex pairs.
That weakness in the US dollar “has effectively triggered a repricing in commodities” which are predominately US dollar denominated Rodrigo Catril, currency strategist at the NAB. That meant it was a stronger night for crude again with the Nymex WTI benchmark closing above $40 for the first time since early December last year. Overall the benchmark Thomsen Reuters CRB index was up 2.24% and specifically iron ore futures were mildly higher in US trade while copper rose 2.4%.
It all ties back to a more positive outlook for the ASX today when the market opens. The June SPI200 futures contract is off its highs but still up 0.5%, 24 points, and the miners did very well in London trade.
Here’s the scoreboard (8.06am):
- Dow: 17,481, +155 (+0.9%)
- S&P 500: 2,040, +13 (+0.66%)
- SPI200 Futures (June): 5,194, +25 (+0.5%)
- AUDUSD: 0.7641, +0.0086 (+1.03%)
The top stories:
1. The Aussie dollar continues to roar towards 78 cents. The AUDUSD was making some solid gains under its own steam over the past week but the fact that the Fed’s decision yesterday has knocked the US dollar for six has helped it step up and through 76 cents to a new 8-month high of 0.7651 overnight.
What’s really interesting about this move in the Aussie is that it may not stop at 78 cents if, as I’m reading in investment bank research notes over the past 24 hours, forex traders get uber bearish the US dollar. This morning I’m hearing targets of 1.16 for the euro (1.1312 at present), and 108 for USDJPY (111.42 this morning – lower USDJPY equates to a weaker US dollar). Given 78 cents is just a run of the mill correction, and as such is nothing special in the grand scheme of long term forex trade, the topside pressure for the AUDUSD could be building. Let’s see how the Aussie looks at 78 before we get too excited though.
2. The ASX will break up and through resistance today. Like the little engine that could, the ASX200 should be able to get to the top of the mountain and break up and through resistance today on the way to 5300. That’s the unmistakable takeaway from the rally in risk assets – US stocks, US bonds, the Aussie dollar, crude oil, copper, iron ore, et cetera – overnight. But like the little engine that could, the ASX200 is also the little market that doubts itself.
So it was again yesterday that the market rallied but couldn’t take out the high of the week to close at 5168. But with BHP up 7.67% and Rio up 5.41% in London trade and Citibank up 1.5% in the US, our materials and banking sector could power the index up and through resistance. Maybe anyway. I think I can, I think I can…
Speaking of Rio Tinto Sam Walsh is set to retire as CEO of Rio Tinto in June. He’s being replaced by a 44-year-old.
3. This hedge fund manager says we’re headed to into a ‘Mad Max’ world if China listens to market pressure and devalues. It’s been all quiet on the Hugh Hendry front for a few years. But the founder of the Eclectica hedge fund is back with a vengeance with a new interview for Raoul Pal’s Real Vision network Julia La Roche reports.
Hendry has always been colourful and said the world would be “over” if China devalued its currency by 20%. “Tomorrow, we wake up — I mean, I would jump out the hotel window if this was the scenario — but we wake up and China has devalued 20%. The world is over. The world is over,” Hendry said.
4. The Fed may not raise rates at all this year. The one thing that hits me between the eyes the longer I think about yesterday’s FOMC statement and Janet Yellen presser is how much weight the Fed is now putting on offshore events which theoretically are outside its purview.
So it is interesting that JP Morgan said overnight that the Fed will delay because of Brexit and US presidential election. That doesn’t mean they won’t hike but that they’ll avoid both these big events and hike in July and December. Bob Bryan has more here.
5. If you are wondering how the production side of the global economy is going, look no further than Caterpillar. Lucky for developed nations they tend to be mainly service and consumption based, because if the economy was anywhere near as industrially based as the media and markets focus suggests, we’d all be rooned, as Hanrahan suggested.
But for industrial giants like Caterpillar times are tough. Last night the company announced forecasts for first-quarter sales and profits Thursday that trailed analysts’ estimates, Akin Oyedele reports.
But, the key for me and something that we should all remember when looking at the data and coverage is, like Hanrahan, sometimes it’s too easy to be negative. Developed economies are about services and consumption.
6. Here’s another reason the Aussie dollar looks attractive to global investors – Norway cut rates again and said they could go negative. Australian rates are stuck at 2% for a while. Sure the bias is lower and the door is open to an RBA cut but realistically it’s viewed as a chance, not a likely outcome in the market.
But across the globe rates are still heading lower. Last night Norway became the latest central bank to cut rates, slicing 25 basis points off its benchmark rate to hit 0.5%. The bank said “Should the Norwegian economy be exposed to new major shocks, the Executive Board will, however, not exclude the possibility that the key policy rate may turn negative”.
Or you can earn 2% in AAA-rated Australia.
And the overnight round-up of key data(courtesy BNZ Markets)
NZ: GDP (q/q%), Q4: 0.9 (0.7 exp)
NZ: GDP (y/y%), Q4: 2.3 (2.1 exp)
AU: Employment (change ‘000), Feb: 0.3 (13.5 exp)
AU: Unemployment Rate (%), Feb: 5.8 (6.0 exp)
EC: Core CPI (y/y%), Feb F: 0.8 (0.7 exp)
UK: Bank of England Bank Rate (%): 0.5 (0.5 exp)
US: Philly Fed Business Outlook, Mar: 12.4 (-1.5 exp)
Have a great day. You can catch me on Twitter.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Media reaction to yesterday’s profit result was mixed with concerns being expressed about the drop in profit margin. All up it looked like a reasonable early start on their new strategy, though. Sales in those stores with the new brands and enhanced customer service jumped 7.1%. Reduced margins are part of this, with the new “concession” sales strategy involving lower profit margin.
The market was pretty positive. Myer gapped higher and closed up 11% at $1.24.
You can make out a bullish scenario for the chart as well. Yesterday took out the previous high which stopped neatly at the 38.2% Fibonacci retracement. That’s typical behaviour for the first leg in a rally. Harmonic projections of this “AB” rally could see it up to the 61.8% retracement level around $1.40. However, a watching brief on the AB=CD level around $1.33 as the next potential turning point might also be advisable.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC