Rodrigo Catril, currency strategist at the NAB in Sydney, has a great wrap of all the overnight action this morning. In a note to clients he said:
China’s decision to reduce the required reserve ratio on major banks (-50bps) set the tone in yesterday’s Asian session and it helped the market look through a set of soft PMI throughout the region. Against this backdrop, European equities opened firmer and then a better than expected set of US data releases provided an additional boost to risk appetite, pushing equity indices higher on both sides of the Atlantic.
Stocks in the US received a further lift with the release of stronger than expected ISM Manufacturing survey which bounced to to 49.5 vs 48.5 expected. Still weak, but not as bad as feared. That’s all the fuel the market needed.
The better tone in stocks, and the bond market sell-off helped the US dollar against the yen which lost more than 1% and it also buoyed the Australian dollar which is back near 72 cents this morning.
On commodity markets, Brent and WTI crude are up 0.7% and 1.8% respectively. Iron ore gained 3.7% to $51.4, the CRB index is up 0.5% and gold is almost unchanged at $1234.5.
Here’s the scoreboard (8.00 am):
- Dow: 16,863, +346 (+2.1%)
- S&P 500: 1,974, +42 (+2.16%)
- SPI200 Futures (March): 4,976, +86 (+1.8%)
- AUDUSD: 0.7176, +0.0038 (+0.56%)
The top stories:
1. Bears wrong, bulls right – stocks are on a tear. Spring has sprung in the northern hemisphere as traders started the new month in a good mood by buying stocks. That meant the globe’s bellwether stock index, the S&P 500, has now decisively broken up and through the top of the resistance zone for that W pattern we’ve been talking about. That means the technicians out there – the chartists – will now be looking for the S&P 500 to make a run at 2100 from the current level of 1976.
That’s one heck of a rally if it comes to fruition and it will drag the ASX along for the ride. 5000 first and then perhaps 5100 and maybe even 5150/70. It’s really about offshore markets though.
2. Here are 8 reasons stocks are exploding higher right now. In an afternoon note to clients, JonesTrading’s Dave Lutz sent out a brief list of why stocks rallied in the US overnight.
Item 4 below adds one to Lutz’s thesis but Akin Oyedele has more here.
3. The RBA is slowly inching toward an another rate cut. There were a lot of very subtle changes in the RBA governor’s statement yesterday. Changes which suggested to me that the RBA is hardening up its easing bias. Wearing my other hat as chief market strategist at AxiTrader yesterday afternoon, I wrote seven reasons the RBA might cut rates again even though it doesn’t want to.
It’s a view I hold in common with Goldman Sachs’ chief economist for Australia Tim Toohey, who published a note saying the RBA is inching toward its next easing. He has some solid reasons but perhaps the most compelling is that Australian financial conditions are now tighter than at each of the past four RBA easings. I’ve wrapped his note here. It has a cracking chart of those financial conditions.
4. Rumours of the death of the US economy have been exaggerated. One of the great advances of the past 15 or 20 years in economics and finance is the understanding that the behavioural approach brings to the economy and markets. One of those insights is that fundamentals are as important as ever, but so too is market sentiment. That means when traders, and expectations for data become too bullish, or more recently too bearish, then even bad numbers can cause a rally.
That is what we have seen last night with the release of weak and weakish ISM and Markit PMIs, yet both data points beat expectations with their prints of 49.5 and 51.3 respectively. The US dollar got a rocket against the yen. But unhappily for the RBA, “risk on” means Aussie up.
5. Bonds are getting hosed because US data is not cratering. The flip side of rising stocks being driven by data that is not as bad as thought is interest rates rising. That’s what we have seen from the US overnight with the 10-year bond rate up 9 points to 1.83%. That’s impacted rates across the globe, including the front end of the bond curve here in Australia.
Yesterday, in the wake of the dovish RBA governor’s statement, two-years made a low of 1.72% but they are back at 1.8% this morning. Small bickies in the grand scheme of things. But a reversal in sentiment will drive bond rates higher.
6. Time to buy gold? What’s the most amazing market performance at the moment as the US dollar strengthens and risk goes bid again driving stocks up and bond prices lower? It’s gold. After years in the doldrums, unwanted by almost anyone except the gold bugs, it’s doing well at $1234 this morning.
Writing on Business Insider US, Frank Holmes from U.S. Global Investors says “last Friday, gold experienced a ‘golden cross’, a technical indicator that occurs when an asset’s 50-day moving average crosses above its 200-day moving average. It’s the first such movement in nearly two years and is a sign that gold might have further to climb.”
It’s an interesting piece. You can read more here.
And the overnight data round-up (courtesy BNZ)
NZ: Terms of trade (q/q%), Q4: -2.0 vs. 0.0 exp.
JP: Household spending (y/y%), Jan: -3.1 vs.-2.7 exp.
AU: Current account balance ($b), Q4: -21.1 vs. -20.0 exp.
AU: Building approvals (m/m%), Jan: -7.5 vs. -3.0 exp.
CH: Manufacturing PMI, Feb: 49.0 vs. 49.4 exp.
CH: Non-manufacturing PMI, Feb: 52.7 vs. 53.5 prev.
CH: Caixin China manufact. PMI, Feb: 48.0 vs.48.4 exp.
AU: RBA cash target (%), Mar: 2.0 vs. 2.0 exp.
US: Fed’s Dudley speaks in Hangzhou
GE: Unemployment rate (%), Feb: 6.2 vs. 6.2 exp.
EZ: Markit Manuf. PMI, Feb F: 51.2 vs 51.0 exp.
UK: Markit Manuf. PMI, Feb: 50.8 vs. 52.3 exp.
NZ: GDT Dairy Auction, WMP +5.5% to $1974
NZ: GDT Dairy Auction, avg price +1.4% to $2253
US: ISM Manufacturing, Feb: 49.5 vs.48.5 exp.
US: Construction spending (m/m%), Jan: 1.5 vs. 0.3 exp.
Have a great day. You can catch me on Twitter.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
One of the big investment questions for coming years is whether technology will on balance prove to be an opportunity for existing banks or a disruption that will see their dominant market positions diminished. Banks are of course alert to this challenge.
Yesterday, ANZ announced the appointment of Google Australia CEO, Maile Carnegie, to the key role heading up its digital banking.
In the meantime, the ANZ chart looks a chance of completing a bullish double bottom pattern. It has made 2 lows at the same price. Depressingly for shareholders these lows are neatly at the 78.6% Fibonacci retracement of the entire 2011-2015 rally.
To complete a bullish double bottom pattern, ANZ would have to break above resistance at $23.86. If it can do that, the next hurdle is resistance around the 50% retracement level around $25.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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