6 things Australian traders will be talking about this morning

Kevin C Cox – GettyImages

Madame Yellen has your back.

That’s the clear message traders took from the Fed statement and Yellen’s press conference this morning. It seems both were much more dovish than even the most optimistic traders thought if the price action of the US dollar, stocks, and interest rates is any guide.

In the end the Dow rallied 0.43%, the Nasdaq was 0.75% higher and the S&P 500 closed at 2027, up 0.56%. That’s helped the local market with the ASX SPI 200 futures contract up 34 points, 0.7% this morning, setting up a good day for local stocks.

Also helping stocks will be the big rally in gold, crude oil’s massive leap after news of the potential for a wider production deal hits the airways, and the big rally in bond rates across the globe this morning.

On forex markets, the Aussie dollar roared back to the mid 0.7550s amid weaker US dollar trading post-Fed. Euro is at 1.1225, USDJPY is down at 112.50 and the CAD is the big mover, gaining 1.8% to 1.3108.

Here’s the scoreboard (7.26am):

  • Dow: 17,325, +74 (+0.43%)
  • S&P 500: 2,027, +11 (+0.56%)
  • SPI200 Futures (June): 5,162, +34 (+0.7%)
  • AUDUSD: 0.7555, +0.0100 (+1.26%)

The top stories:

1. If the Fed is out of the way and after support held yesterday, the ASX could pop soon. Okay, a dovish Fed, continued monetary support from the ECB, data that’s not terrible anymore, and a continued recovery in sentiment all contribute to an outlook that has suddenly brightened materially for risk and global stocks.

The Fed’s action in undermining the US dollar also takes a foot off the throat of commodity prices, most of which are denominated in US dollars. So we get a twin support for stocks on the local market. 5060-5080 is now the key support and this week’s high at 5214 resistance. But if 5214 gives way, technical traders will be looking for a move to 5302 and then 5334/57.

2. The Australian dollar is rallying hard as the US dollar gets crushed post-Fed. If the Aussie dollar is going to roar, now is the time. Over the last 24 hours it posted a low of 0.7413 which is – again – right in the 0.7400/20 support zone that has been support for the past eight trading days. Post-Fed decision it rocketed and is now back at 0.7550 and looking strong.

Of course the NAB currency team, and your humble correspondent, are on the record suggesting 78 cents is a strong chance. The Fed is out of the way so there is little to block the next leg of the risk rally – the Aussie should benefit from that.

3. The Fed’s statement was less aggressive than some expected. Having read the Fed’s statement and watched Janet Yellen’s press conference this morning, it really feels like the Fed has itself in a bind. The Fed held rates steady and said the global economy is still a peril in the second sentence of its statement. But when pressed by journalists on these risks, Yellen gave little depth other than mouthing well-known concerns over China, Europe and global growth.

That’s important because if the Fed is going to lean on these risks as their core worry – seemingly over the US economy – and if Yellen pooh poohs any concerns about inflation – as she did even though inflation data released last night hit a post-crisis high – then how is the Fed even going to execute the two hikes the Fed’s dot plot is now suggesting?

That’s why the US dollar is lower and gold and stocks are higher. But for me, it’s going to be a question of credibility going forward. It is going to be an interesting six months.

4.If the dot plot isn’t important, why produce it? What adds to my sense the Fed has itself in a bind is that Yellen spent some time during the press conference making the point that the famous dot plot isn’t a forecast. She essentially said it’s just a reflection of each of the 17 members of the FOMC guesses where they think rates will end each of the next three calender years and the long run.

We know that.

But it was the dot plot – and the fact the average dropped from four hikes in 2016 to just two – that was the big market mover. But one thing jumps out at you when you look at 2017. Even the most Dovish Fed officials say rates are going to rise at least 1% with the median around 1.5%.

The question for traders is whether that too will be revised lower. That’s because market pricing is well below even the most dovish Fed expectations. I’m still not convinced but a Fed heading toward market will be very supportive of risk assets unless the world economy is tanking.

5. Crude roared as OPEC and non-OPEC members agreed to hold a meeting. The wild ride continued in crude overnight with a 5% rally coming after news broke that non-OPEC and OPEC producers have agreed to meet to discuss freezing output and the Fed appeared to be more dovish than many anticipated.

That’s left Nymex crude up more than 5% and Brent crude up 3.54%. These gains are despite Iran’s opposition to production cuts. Thomas Pugh of Capital Economics said in a note, “Any such deal would still not be a game changer. It would really just maintain the excess supply that is now in place.”

6. The gold bulls have it as the shiny stuff rockets back to $1,260. We learnt something about the gold rally this morning. It’s not just about China and uncertainty, it’s also about the US dollar. That’s the unmistakable message in the post-Fed environment which saw gold rally from the $1230s to $1261 back up near recent highs.

Gold has been a much-despised commodity over the past few years. But the bulls might be wondering how long until it can get to $1400, because increasingly that’s looking like the target on a multi-month basis.

And the overnight round-up of key data(courtesy BNZ Markets)
NZ: Current account bal. (% GDP), Q4: -3.1 (-3.3 exp)
UK: Unemployment rate (%), Jan: 5.1 (5.1 exp)
UK Budget – Sugar Tax!
US: Housing starts (‘000), Feb: 1178 (1150 exp)
US: Building permits (‘000), Feb: 1167 (1200 exp)
US: CPI ex food, energy (m/m%), Feb: 0.3 (0.2 exp)
US: CPI ex food, energy (y/y%), Feb: 2.3 (2.2 exp)
US: Industrial production (m/m%), Feb: -0.5 (-0.3 exp)
US: FOMC rate decision (%), Mar: No change 0.25-0.50

Have a great day. You can catch me on Twitter.

And now from CMC Markets’ Ric Spooner is today’s Stock of the Day

Newcrest Mining

The ECB fires a bazooka and the dollar still goes down. The Fed makes a nuanced change to the possible pace of rate hikes and the dollar goes down more. A story is being told about where the market wants to go at the moment. Gold traders got the message with a good rally last night.

Newcrest should have a positive session today. This will see a bounce off the 38.2% Fibonacci retracement of an Elliot 5 wave advance from $12.55 to $18.63. A move to 38.2% is often just the first leg down in a bigger correction. The key to the big picture with this chart will be whether it can move quickly to take out the $18.63 high. Finishing the whole correction after only 38.25% would be strong, impulsive behaviour.

That’s the outcome for those who reckon the dollar could break below its 1 year supports sending gold on its merry way.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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