Stocks got a lift across the globe in the past 24 hours with the US Fed, Bank of Japan, and RBNZ all signalling the era of monetary accommodation is not about to come to a screaming halt.
That saw the Nikkei up 1.9% in Tokyo yesterday while in the US overnight stocks were around 1% higher in the wake of a Fed which was at the same time hawkish and dovish.
That sets up a good day for the ASX 200 which has some catching up to do and the futures suggest a 32 point gain out of the gate. It also sets up a good day for Australian dollar bulls as the Aussie is back above 76 cents after the US dollar fell and risk appetite increased.
Oil jumped another 3% to $45.36 a barrel in WTI terms, iron ore was higher, and gold bounced off support on the weaker dollar and is back at $1336 an ounce.
Here’s the scoreboard (7.59am):
- Dow: 18293 +163 (+0.9%)
- S&P 500: 2163 23 (+1.09%)
- SPI 200 Futures (December): 5,335 32 (+0.6%)
- AUDUSD: 0.7629 +0.0078 (+1.03%)
The top stories
1. The ASX 200 should continue to play catch-up today. The chart below speaks for itself. For whatever reason the ASX 200 collapsed in August and materially underperformed against the S&P 500. It’s done that a couple of times this year and each time it’s roared back to catch up with the move in US stocks – at least based on this relationship.
So with the Fed, BoJ, and RBNZ all being equity market accommodative, and with commodities higher again, it’s time for the ASX to play a little catch-up in the next few days. The market closed yesterday at 5339 and a target of 5420 is not out of the question by week’s end.
2.The Fed left rates on hold, with hawkish text but dovish dot plots and GDP forecasts. The Fed decision, statement, dot plot and then chair Janet Yellen’s press conference were super interesting this morning.
Specifically, while holding rates steady the bank said the case for an increase to the Fed funds rate later this year has strengthened. But it balanced that out with the new dot plot, showing where FOMC members think rates should be in the next few years, was more dovish. The Fed also cut its estimates for GDP, and now sees the economy growing this year by 1.7% to 1.9%, down from its previous outlook of 1.9% to 2.0%.
The high level summary would be rates are likely to rise, but not by much, so equities are free to go about their business and long bonds don’t need to fear an aggressive cycle any time soon.
3. After the Bank of Japan’s “comprehensive review” of monetary policy, it did almost nothing. When the BoJ released its review and new plan for “QQE with Yield Curve Control” yesterday I was left with a distinct feeling that it set us up for a big review and the only real change was it threw out the modern central banking rule book with a decision to abandon the money base target and let cash wash through the market until inflation gets back to 2%.
I think it can work in time if the BoJ can sell it to the population and change inflation expectations. But that’s not the view of the forex market right here and now. After crashing into overhead resistance around 102.70, USDJPY is now back at 100.36. But the Nikkei loved it, especially Japanese banks, and the 10-year bond is sitting just under zero per cent where the BoJ said it wants to set it. So it’s not a complete fail by governor Kuroda and his board.
4. The RBNZ leaves rates unchanged but says there’s likely to be cuts coming. The RBNZ left rates on hold this morning at 2% but David Scutt reports the bank maintained a clear easing bias in the final paragraph of the statement, indicating that further rate cuts are likely.
“Monetary policy will continue to be accommodative. Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range. We will continue to watch closely the emerging economic data,” the bank said.
5. Investors are bleeding billions of dollars because of negative rates. Here’s one reason the BoJ is trying to get longer bonds back above zero. Akin Oyedele reports that Fitch Ratings has again shone a torch on the volume of bonds across the globe with negative rates.
Robert Grossman, the head of macro credit at Fitch, said” “Weighted average sovereign yields for the 14 countries with negative-yielding debt remain near all-time lows”. And he added something Japanese life companies, and Australian term deposit holders know all too well. The fall in rates over the past 5 years means investors dependent on interest rate product for income “have suffered.”
6. The first really meaningful and massive Chinese bankruptcy has arrived. Linette Lopez reports that the first of China’s massive state-owned organisations, Guangxi Nonferrous Metals Group, has collapsed under the weight of $2.2 billion worth of bad debt in China’s interbank bond market.
Linette references a recent note from Nomura that says this is not likely to be an isolated case. She’s got more here.
Key data for the past 24 hours (with thanks to BNZ markets)
AU: ANZ RM cons. conf. index: 115.5 vs. 118.1 exp.
AU: House price index, q/q, %, Q2: 2.0 vs. 2.8 exp.
US: Housing starts, m/m, %, Aug: -5.8 vs. -1.7 exp.
US: Building permits, m/m, %, Aug: -0.4 vs. 1.8 exp.
NZ: GDT dairy auction, % chg from last event: 1.7
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Kathmandu Holdings treks on
Intrepid traders who bought this stock a few months ago have been well rewarded. The stock was up 2% after its profit result yesterday but has scaled the heights since June, rallying 56% after publishing revised guidance.
Yesterday’s profit of $33.5m was bang in the middle of that guidance range. Management has improved profit margins by refreshing the range of products sold and is eking out respectable sales growth via an incremental new store program. Future strategy includes building on the brand’s beach head in the UK with further international expansion.
The big turnaround might be behind Kathmandu and at around at around 11.5 times forward earnings it’s probably fairly priced. Traders hoping for more attractive value might be looking for a drop out of the current range and a deeper correction.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC