The risk rally rolls on in the US, curing the poor showing on the ASX yesterday and pointing to a very solid rally when trade opens this morning.
With 30 minutes to go before the close the Dow is up 1.5%, the S&P 500 is 1.66% higher and the Nasdaq has jumped around 2% overnight.
That’s pushed the March SPI 200 contract up 70 points, 1.4% to 4,906.
On other markets, crude is up more than 5% as Iran seemed to back the Saudi/Russian deal without showing any signs of wanting to join in. Gold is back at $1,210 and the Australian dollar, along with the Kiwi and the CAD, is ripping higher as sentiment turns across markets more broadly.
The Aussie is strong this morning and making a run at 72 cents. A strong employment number today could easily push it toward 73. David Scutt has a preview here.
Here’s the scoreboard (8.30am):
- Dow: 16,434, +226 (+1.5%)
- S&P 500: 1,926, +31 (+1.66%)
- SPI200 Futures (March): 4,906, +70 (+1.4%)
- AUDUSD: 0.7180, +0.0076 (+1.08%)
And the top stories:
1. Buyers are back, stocks are rallying and the bears are on the run. Everyone seems at pains to say that last week’s lows may not prove sustainable in the long run. But at the time, it looked like they were the pessimistic selling crescendo we need to exhaust the bears and set the scenes for a recovery.
You’ll remember I tweeted Friday that the rally was coming for the ASX and SPI 200. Four days into the rally, so far so good. The SPI 200 is pointing sharply higher and I think it and the ASX are biased back above 5,000.
To support the idea that things are turning around for stocks, Bob Bryan reports that the bad news for stocks is starting to disappear. I reckon Jim Reid from Deutsche Bank is 100% correct when he says:
While we have major concerns about financial markets over a 1-3 year basis we can’t help thinking some of the negative catalysts that markets have had in the last two months are being becalmed.
And a healthy dose of short covering from short sellers never hurts in the short run. Myles Udland reports shorts have been buying back in the past 2 days.
And, in what is probably the most positive sign for the bulls, Morgan Stanley’s Adam Parker put out a note saying “The Bull Case Is No One Has a Bull Case.”
2. The rally might have legs but Bill Gross says use it to “de-risk”. Sell! Agreeing with Deutsche Bank’s Reid implies that there is a chance that stocks, markets in general, will have another down leg. It’s a stance Janus Capital’s Bill Gross seems to agree with.
Linette Lopez reports Gross tweeted that China could blow everything up and investors should “use risk rally to de-risk”.
3. The Fed Minutes reveal the US central bank has the jitters about the economy. When you read the minutes from last month’s first FOMC meeting for 2016 you get a real sense that most members were willing to admit things had changed in a material way. But you also get a sense that most also still have faith in the strength of the US jobs market and the return of inflation to 2%.
(As an aside, US PPI surprised last night with a +0.1% print against expectations of a fall of 0.2%.)
But key for markets is the explicit nature in which the Fed aired its concerns. That’s meant the market took the minutes as being dovish which helps stocks and hurts the US dollar a little. Akin Oyedele has more here.
And Myles Udland neatly highlights that this “Twitter exchange tells you everything you need to know about Fed communication.”
4. Iran supports oil freeze but won’t commit to it – or put another way, it’s our turn to produce. Oil is up 5% today after news broke that Iran supports the Saudi and Russian sponsored deal to cap production in an effort to stabilise prices. The FT reports Bijan Zanganeh, Iran’s oil minister, said: “Iran backs any measures which help stabilise the market and improve the price of crude oil.”
But in a clear sign that Iraq won’t be capping its own production, Iran’s OPEC envoy, Mehdi Asali, said overnight “asking Iran to freeze its oil production level is illogical … when Iran was under sanctions, some countries raised their output and they caused the drop in oil prices.”
Most pundits are saying the deal won’t work. For the moment though the turn in sentiment across markets has helped lift stocks.
5. If these guys are back buying high yield and distressed debt, then we know sentiment is turning. Matt Turner reports that private-equity firms and distressed debt specialists spy an opportunity amid the market carnage of the past few weeks, and large funds are ramping up investment.
6. Bill Gross might be right – sell everything. I did an interview with Richard Aedy from ABC Radio National yesterday on some of the more interesting behavioural indicators of the economy. You know, the types of things that are beyond anecdotes but not exactly hard data. Cranes on the skyline, lipstick sales, hemlines, cafe and restaurant sales and so on. One of the ones we also talked about was the phenomenon – real or imagined – that we seem to get new tallest buildings in the world right before big market down moves.
Talia Avakian reports an architect wants to build this mile-high skyscraper on the waters of Tokyo Bay. But it might just be a case of it’s the thought that counts, because it’s also just a concept.
Have a great day. You can catch me on Twitter.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Domino’s Pizza (DMP: ASX)
It was pretty hard to fault Domino’s profit result yesterday. Net profit was up 58% based on strong sales growth and expanded margins. Full year profit guidance was upgraded to 35% from 30%.
Medium term prospects look strong. Domino’s innovation and use of disruptive technology has achieved a market leading brand with plenty of scope for growth. Sales growth can come via new stores and leveraging its supply chain with new products like burgers; fried chicken and sandwiches. There’s also plenty of scope for ongoing productivity gains.
Market reaction was positive with the stock closing 6% higher. However, it finished well below its high after a brief foray into new high ground above $61.
The low 2 weeks ago around $48.50 now looks like chart support. This also picks a potential trend line. The significance of this trend is enhanced by the 200 day moving average which is tracking neatly below it. More cautious potential buyers might be looking at the 200 day average as a support zone that currently picks up the 61.8% Fibonacci retracement as well.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC