After rallying hard for the last few sessions stocks in the UK and US have stalled overnight. The FTSE 100 in London dipped 0.1% while stocks in the US rallied in the last 20 minutes of trade after what had been a lacklustre day. That’s left the Dow up 0.2% and crucially continued the S&P 500’s climb away from the top of the big W patter and on track for 2000 and maybe even 2100.
That wash up is another good day beckons on the ASX today when the physical market opens. The SPI 200 MArch contract is up 25 points to the good after a stunning rally yesterday which saw the ASX 200 power up and through 5000.
On forex markets the Aussie has ripped higher on the back of the strong GDP and along with the Pound is the standout for the past 24 hours. Euro hasn’t moved and USDJPY has drifted back again.
On commodity markets iron ore is ripping higher again as its strong surge continues. Gold is still strong in the high $1,230’s and crude oil is marginally higher also at $34.67 for WTI.
Here’s the scoreboard (7.30 am):
- Dow: 16,863, -2 (-0.01%)
- S&P 500: 1,981, +3 (+0.14%)
- SPI200 Futures (March): 5,028, +14 (+0.3%)
- AUDUSD: 0.7292, +0.0117 (+1.64%)
The top stories:
1. The Aussie dollar hit 73 cents overnight as Australia stands out among a moribund world. Danger Will Robinson. That’s what the robot from Lost in Space would be screaming about the rally of the Aussie this week. From a low of 0.7162 yesterday, and having looked like it might break below 71 cents earlier this week the Aussie is back at 0.7290ish this morning.
That’s not a problem yet for the Australian economy. But if the Aussie breaks the 0.7380/0.7400 range it could be off to the races and become a handbrake on growth. Why is it rallying? Because the Australian economy continues to confound the critics. Yesterday’s GDP suggests a higher hurdle for the next RBA easing and it all ties back to Australia’s AAA rated government bonds having a massive yield when compared with other AAA or AA rated nations. Hence the foreign demand.
David Scutt has more on the latest move here.
2. Ahem Fed watchers, the Beige Book says the US economy is getting stronger. “Reports from the twelve Federal Reserve Districts continued to indicate that economic activity expanded in most Districts since the previous Beige Book report.” That’s the opening sentence in the latest wrap by the 12 regional Federal Reserves of the current state of the US economy.
That’s a different take on the economy than the one traders have taken in the early part of 2016. Of course there is little chance of a Fed hike in March and the dot plot will likely be adjusted to reflect less rate rises this year. But there is little sign of recession.
The key thing for traders is this will influence the US dollar and US bond rates which in turn impact everything on the planet. In time at least. Akin Oyedele has more here.
Oh, and watch out folks. The FT reports that influential San Francisco Fed president John Williams is bullish on the US economy.
3. Here’s another sign that Australia’s economic transition is taking place Yesterday’s GDP was stronger than anyone thoughtwith a print of 0.6%. That number is inflation adjusted and it was driven by strength in households and the non-mining sector.
But businesses live in a nominal world – the dollar you earn is the dollar you earn. So, it’s worth highlighting that strength in the inflation adjusted numbers is being mirrored in the nominal numbers. After many years below the long run average the non-mining economy is back. That means any business that has survived the past few years should be in a solid position and feeling confident. Here’s the NAB’s chart:
And here is a wrap of yesterday’s GDP coverage:
- Consumer’s are doing their bit, they’ve driven savings down to a post GFC low. But politicians could screw it all up.
- Economists give the surprising Australian GDP data the thumbs up.
- CHART: Australia has now gone 24.5 years without a recession – here’s what that looks like
Oh, and in case you think we’re Panglossian, Paul Colgan has covered Deutsche bank economist Adam Boyton’s note highlighting there’s still a big problem in the Australian economy.
4. Here’s a new way to think about OPEC and it will change the way traders think about oil markets. OPEC is no longer a cartel. It’s a central bank says Jason Schneker, president and chief economist at Prestige Economics. Schneker is a guy who has attended every OPEC meeting for the past decade and he’s reckons the way it operates is now more nuanced than it was in the past.
It’s also interesting because in Shneker says that in the same way central banks “don’t necessarily set foreign exchange rates or even interest rates for that matter,” OPEC can’t set oil prices anymore. That means traders can take utterances as jawboning and action – in terms of production levels and cuts – as the only real lever OPEC can pull. Bob Bryan has more here.
And as if on cue Akin Oyedele reports that US crude oil in storage had a huge spike last week.
5.This is crazy – the Bank of Japan issued 10 year bonds with a negative rate. It’s been such a great week to talk about markets that I haven’t had a chance to mention the latest in what is the incredible, or incredibly ridiculous, state of markets in 2016. So here’s one to add to the list. Japan sold 10-year bonds at an average yield of minus 0.024 on Tuesday.
And here is what Martin Whetton, the ANZ’s senior interest rate strategist told clients about the impact of this yesterday – on Dr Seuss’ 100 birthday:
The Dr Seuss world of markets took another leap into topsy-turvy this week, with Japan selling a new 10 year bond at a negative yield. With the debt-to-GDP ratio approaching 260%, it seems incongruous to pay the MoF to hold their bonds. This is of course not a new thing, with some 60% of German debt at a negative yield, but it is the first 10 year for a major market to issue in the negative zone. Given this dysfunction in the markets, we are loathe to recommend duration here as we continue to believe the risk/reward is not compelling. We do not see the data matching the market pricing, though we accept it doesn’t always have to.
6. Peak uncertainty? Let’s take another walk down the behavioural track. Myles Udland reports that there’s a bull market in uncertainty. Myles sourced a report from UBS’ Julian Emanuel which says “the media have fed the uncertainty beast vigorously.” And he has a chart of Bloomberg stories with uncertainty in them.
It’s a modern day, and much faster, version of the magazine front page index. But it reflects that much bad news has been priced in 2016. Yes, its uncertain. But as the Beige book suggest, maybe not as much as many think.
And the overnight data round-up (courtesy BNZ)
NZ: QV House prices (y/y%), Feb: 11.6 (12.6 prev)
AU: GDP (q/q%), Q4: 0.6 (0.4 exp)
AU: GDP (y/y%), Q4: 3.0 (2.5 exp)
UK: Markit Construction PMI, Feb: 54.2 (55.5 exp)
US: ADP employment (chg ‘000), Feb: 214 (190 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
News reports are confirming that BHP’s joint venture, Samarco has finalised an agreement with Brazilian authorities to pay for damage caused by the disastrous collapse of its tailings dam.
New York trading is suggesting BHP could open 3 or 4% higher this morning. Another positive session for iron ore will help.
The next significant chart hurdle for BHP looks to be around $18.50. There’s quite a bit going on there including the last major peak, the 100 day moving average and the 38.2% Fibonacci retracement level.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC