Stocks were lower again in Europe and the US on Friday as lingering concerns about China and a very strong print for US non-farm payrolls (+292,000 versus +200,000 expected) combined to add to traders’ concerns about the path of stocks, and the Fed tightening cycle in 2015.
That weakness suggests a very poor start to trade in Australian stocks today with the SPI 200 March contract down 80 points, 1.6% to 4,850 at the close on Saturday. With lingering concerns about China and emerging markets, it could be another weak day for the ASX but the market is approaching important support.
Speaking of support, it was lacking for the Aussie dollar which is back under 70 cents this morning and looking weak. Elsewhere, the US dollar wasn’t overly strong, losing immediate post-NFP gains as stocks fell. Crude ended the week on the back foot and gold held above $1100 an ounce for the first time since late October.
So, the scoreboard (8am):
- Dow: 16,346, -167 (-1.02%)
- S&P 500: 1,922, -21 (1.08%)
- SPI200 Futures (March): 4850, -80 (1.6%)
- AUDUSD: 0.6963, -0.0035 (0.5%)
And now the top stories – there are a lot of questions:
1. How far will Australian stocks fall? Futures are suggesting it is going to be a very ugly open on the ASX today with the March SPI200 contract down 80 points when it closed on Saturday morning. Remember, we watch the SPI because it is open more hours than the physical ASX200 index and thus catches the peaks of euphoria and fear in global markets.
That’s important, because the SPI 200 is closing in on a very important support level traders will be watching closely. 4,818 is the current level that the trendline stretching back to the 2011 low rests at.
2. Will the Aussie dollar hold above the 2015 lows? The Aussie rallied Friday as the Shanghai stock market steadied. But it was crushed on Friday night and has tumbled below 70 cents and is just 60/70 points above the 2015 low as a combination of risk aversion (stock market selloff) and fears about China knock it lower.
But the big driver is China. The Aussie is getting the triple whammy as a proxy for global growth, risk aversion, and as a proxy for China. Strategists at Bank of America Merrill Lynch wrote Friday: “Models recommend selling AUD/JPY as a proxy for China risks.” If 0.6880 gives way, Aussie selling could accelerate.
3. What’s going to happen in Chinese markets this week? China had a shocker last week. Weak PMI data raised concerns about the state of the economy. The Chinese central bank driving the yuan weaker reinforced this and forex traders being forex traders grabbed that ball and ran with it. Then of course, we saw the failure and abandonment of Chinese stock market circuit breakers which left Shanghai stocks down around 10% on the week.
So what’s next?
China and its officials are fighting for credibility and they cannot afford to lose this battle with the market. Which is why they appear to have bought stocks Friday and intervened in currency markets. China, as a source of market volatility, looks set to continue for the weeks and month ahead.
Here’s a wrap of some of our latest China coverage:
- Why China’s stock market and currency policies are bound to fail
- The most brilliant China analyst in the world says the government has a ‘new playbook’
- China needs $5 trillion to save its economy — and it might not work anyway
- Old China is drowning
- REPORT: China is taking additional steps to shore up its shaky currency
- And from the WSJ – Intervention by Beijing Is Worsening China’s Market Woes
4. US non-farm payrolls CRUSHED it, adding 292,00 jobs. Here’s Myles Udland from BIUS:
The US labour market is still on fire. In December, the US economy added 292,000 jobs, way more than expected as the unemployment rate held steady at 5% and wages rose 2.5% over the prior year. Wall Street had been looking for an increase of 200,000 jobs. All in, 2015 was the second-best year for job gains since 2000 as 2.7 million jobs were added to the economy, trailing only 2014’s 3.1 million. This wage growth, however, came against a weak month for wages in December 2014 and so this 2.5% increase, which matches the largest annual gain we’ve seen since the financial crisis, was less than what economists had forecast.
Strong jobs such as theses, even though there might have been a “Star Wars” effect, would usually mean the Fed’s intention to raise rates 4 times this year is reinforced. But China woes are confusing things. Put together, both are bad news for stock market bulls.
Myles reckons part of the weakness in stocks is that “uncertainty — and perceived risk that the Fed may have gotten this whole thing wrong — is what currently has markets spooked.”
5. Crude oil and the impact on stocks. Whether your benchmark is Nymex, Brent or Tapis crude, prices are plumbing lows not seen since the depths of the GFC and, in the case of Brent crude, before that. Cheap oil is good news for consumers, outside of Australia where prices seem incredibly sticky, but it’s bad news for stock market earnings Sam Ro, deputy editor at BI US, reports.
It’s just another weight on stocks.
6. It’s another big week ahead for traders and markets. I hope you had a refreshing weekend because we are in for another week with plenty of catalysts for action. Chinese trade data and US retail sales are the highlights globally while here at home we get a read on the twin drivers of the domestic economy with the release of housing finance and employment data.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Blackmores (BKL: ASX)
Things must be getting serious. Even Blackmores is looking a bit toppy. The natural health company and market darling’s share price fell 1.6% on Friday.
The share price had been showing bearish divergence with the RSI in the box below the chart. The RSI has now broken support in a sign of potential weakness.
From a chart point of view, the real test for Blackmores might be the 50 day moving average . This currently sits at $188. As you can see on the chart below, the 50 day ma has done a good job of defining Blackmores’ uptrend since its stellar ascent began a year ago. A pull back to the 50 day moving average would involve a 10% decline from current levels but would only see the stock back to where it was a month ago.
A clear break below the 50 day moving average be a more concerning development but there is nothing to suggest this is on the cards at the moment.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC