Financial markets feel a lot like that movie “Groundhog Day” at present.
The Dow Jones Industrial Average and S&P 500 both closed at fresh all-time highs in overnight trade, continuing the monotonous, weak-volume rally that has seen US markets grind higher over the past two weeks. Additionally, the Dow achieved a rare thing, ending higher for a ninth consecutive session — something that had only happened seven times since 1980.
In Europe, the gains were even larger as improved sentiment towards Italy’s banking sector helped push major indices up by 1% or more.
In commodities, crude bounced, copper fell, as did iron ore. Precious metals finished down smalls, partially in response to further strength in the US dollar.
In FX land, it was another mixed bag with commodity currencies under pressure, partially in response to increased rate cut expectations in New Zealand and Australia, while the USD/JPY rose to as high as 107.41, a high not seen since mid-June. The UK pound also did well, buoyed by strong employment data and few signs of a loss of economic activity in the period following the Brexit vote.
Here’s the scoreboard (8 am AEDT):
Dow: 18,595.03 +36.02 (+0.19%)
S&P 500: 2,173.02 +9.24 (0.43%)
SPI 200 Futures (September 2016 contract): 5469.0 +20 (+0.37%)
AUD/USD: .7469 -0.0006, (-0.08%)
The top stories.
1. The Reserve Bank of New Zealand (RBNZ) just signalled it’s likely to cut interest rates again, and, as a consequence, the New Zealand dollar is tumbling. Here’s what the bank had to say on its outlook for interest rates in its updated economic assessment released earlier this morning:
“At this stage it seems likely that further policy easing will be required to ensure that future average inflation settles near the middle of the target range,” it said.
It also pulled no punches when it came to the level of the New Zealand dollar, admitting that “a decline in the exchange rate is needed”. So far the markets are listening, driving the NZD/USD down by close to 1%. It’s now lost close to 5% in just over a week.
2. The Reserve Bank of Australia (RBA) looks set to cut interest rates aggressively over the next 18 months, but it’s unlikely to result in any meaningful decline in the level of the Australian dollar.
So says James McIntyre, an analyst at Macquarie Research who has been on the money recently when it comes to Australian interest rates, who believes that rate cuts will only prevent further upside in the Aussie, rather than continued weakness. He forecasts that the RBA will cut rates to 1% within 12 months, and even then it’ll only result in the AUD/USD bottoming out at 72 cents, in his opinion. You can read more here.
3. It could get even harder to predict what will happen with oil prices, says Barclays. Researchers at the bank expect oil prices to reach $85 by 2019, a year sooner than previously forecast, but they also predict that the upward path will be more volatile than ever.
“We continue to see a rocky road to recovery, even if the average annual average price is expected to increase,” says Barclays. Front-month Brent crude futures closed Wednesday’s session at $47.10 a barrel, up 0.94%. Chloe Pfeiffer has more.
4. Almost everyone thinks that the Bank of Japan will loosen monetary policy further when it meets next week. The only question now, seemingly, is what actually will be delivered? Will it be further interest rates cuts, more quantitative and qualitative easing (QQE) or, as has been speculated upon heavily since former US Federal Reserve chair, Ben Bernanke, met with the BOJ earlier this month, the introduction of “helicopter money”.
Given lofty market expectations, Citibank’s FX strategy team believe that there’s plenty of room for investor disappointment, and heightens the risk of a reversal in the USD/JPY and Japanese stocks. Here’s the findings of a survey conducted by the bank, along with what it’s clients believe the BOJ will do.
5. Investors in US equities have travelled a rocky road over the last year and have become risk averse in response to rollercoaster prices.
However, in a note to clients seen by Business Insider, the chief investment officer of US equities at JP Morgan Asset Management, Paul Quinsee, said investors should snap up undervalued stocks perceived as risky. “Unmistakable evidence of risk aversion is everywhere, says Quinsee.
“Companies with the strongest balance sheets sell at a 20% premium to the market, and the weakest more than a 20% discount; both metrics are close to 30-year records. The opportunity to invest in undervalued stocks has rarely looked better.” Lianna Brinded has the all the details.
6. UK bookmakers are more sure than ever that Article 50 will never be triggered by Britain. Yes, after unsuccessfully predicting the UK-EU referendum result, the bookies are back suggesting that “Remain” will triumph over “Brexit” yet again.
“Bookmakers are more sure than ever that Article 50 — the two-year notice period the UK must give to the EU before leaving — will never be triggered, despite Prime Minister Theresa May’s continued insistence”, says BI’s Matthew Smith. He notes that “Sky Bet currently gives odds of 2/1 of Article 50 happening in ‘2018 or later or not at all’ — the shortest odds in the market”.
In relation to “Brexit”, the Bank of England stated overnight that “there was no clear evidence of a sharp general slowing in activity” following the referendum. Indeed, employers weren’t all that perturbed about hiring in the lead up to the vote, sending the UK unemployment rate to lows not seen since 2005 in May.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day.
Woolworths (WOW: ASX)
Could it be a case of fifth time lucky?
It’s been a good week for supermarket stocks. Gains so far have been Metcash 7%; Woolworth 4.6% and Wesfarmers 2.5%. The sale of Woolworth’s hardware assets might be creating interest in both Metcash and Woolworths.
This week’s rally brings the Woolworths chart to an interesting point. It’s arrived at the potential resistance of its 40 week moving average. As you can see, this has proved effective resistance on 4 previous occasions during Woolworths’ descent. The moving average coincides with the resistance line of a triangle pattern. A third rejection of this resistance would be bearish; setting up for a potential break of the triangle support.
On the other hand, a clear break of this resistance would be positive from a chart point of view.
The 40 week moving average is just beginning to flatten out. That suggests that if the resistance is broken, Woolworths might be setting up to chop up and down through the average for a while. Under that scenario the resistance around $24-25 might form the upper boundary of the trading range. Given Woolworths competitive challenges, this might be a more realistic expectation than a full blown corrective rally at this stage.
Ric Spooner, chief market analyst, CMC Markets. You can follow Ric on Twitter @ricspooner_CMC.