That didn’t go to plan.
After just one day, the Santa Claus rally in global stock market ran into the Grinch of Christmas as Fed chair Janet Yellen teed up the Fed’s rate hike in a speech overnight. As a result, US stocks are down close to 1%, European stocks were down also and the SPI200 has lost 1%, indicating a poor start to trading today.
Yellen’s comments reversed some, but certainly not all, of the previous day’s bond market rally and while the USD was bid initially, driving the euro under 1.06, much of that strength has dissipated. Euro is back above 1.06 and the Australian dollar is holding 73 cents, just.
Elsewhere, there was a breathtakingly sharp fall in the price of crude oil as the OPEC meeting tomorrow looms large on the horizon. Nymex and Brent Crude are both down more than 4%. Nymex hit $39.76, the equal lowest level since August. Copper is off as are other base metals.
First, the scoreboard (7.55am):
- Dow: 17,723, -166.12 (-0.92%)
- S&P 500: 2,080.37, -22.26 (-1.06%)
- SPI200 Futures: 5,225, -53 (-1.0%)
- AUDUSD: 0.7303 -0.0018 (-0.25%%)
And now, the top stories:
1. The Fed is a LOCK. Just a day after the data had some analysts thinking the Fed’s rate rise on December 16 was no longer a lock, Fed chair Janet Yellen all but guaranteed the first increase since 2006 is a done deal. Speaking at the Economic Club of Washington, D.C. last night, Yellen laid out her primary reason for the tightening. To delay means the Fed “would likely end up having to tighten policy relatively abruptly.” Myles Udland has more here.
Here’s a couple of bonus reasons why the Fed is going to move:
- Fed officials talked to business owners across the country and found wage pressures literally everywhere
- In its Beige Book, the Fed says the economy is doing just fine
2. EU inflation makes more ECB easing tonight a LOCK. On the other side of the Atlantic and the other side of the monetary policy outlook stands Mario Draghi, ECB president and his colleagues. Last night’s undershoot of EU CPI with a print of 0.1% for November (against 0.2% expected) which left the EU’s year on year inflation rate at just 0.9% increases pressure on the ECB to do something big at tonight’s meeting.
What can Draghi deliver? That’s the big question for traders. Mike Bird has a comprehensive look inside Draghi’s monetary arsenal to help us understand what to expect from the ECB’s massive meeting tonight.
3. 5 reasons the Australian dollar has defied the doomsayers. It’s no understatement to say that the Aussie dollar has defied the worst forecasts of its demise over the past couple of months. Westpac head strategist Rob Rennie has identified the 5 reasons it’s been sticky above 70 cents recently. But the RBA, and exporters, can relax – the good times won’t last, Rennie says. You can read more here.
4. Oil crashed in the lead up to this week’s OPEC meeting. The oil price crashed more than 4% last night as traders guess what the Saudis might do at OPEC’s most important meeting in years. That meeting kicks off in Vienna, Friday and rumours about what they will do are already flying. Key here is that most pundits don’t believe that the recent change in rhetoric from the Saudis will be backed up with action. Surely last night’s fall to post-August lows might have woken them up? If not though, $30, here we come.
5. The ugliest day for stocks. Janet Yellen pulled up the Santa Claus rally very quickly last night. The oil price crash would have helped as well. But what will get traders in the US and here in Australia talking is what the technical traders call a “bearish engulfing” pattern, or an outside reversal day. I’ll save you the jargon but it will freak a few bulls out. That’s particularly the case because it is another rejection by the S&P 500 of levels above 2100 and near all-time highs.
Of course, it’s just one day’s trade. But that price action might worry a few traders both in the US and here at home now that the SPI200 is down 50 points, oil is tanking, and iron ore is crashing again.
6. Gina Rinehart’s exquisite timing. There is a ship docked at Port Hedland at the moment called the Anangel Explorer. It’s a bulk carrier and is about to be loaded with iron ore. What’s special about the Anangel Explorer is that it has started loading Roy Hill Mine’s inaugural iron ore shipment. Yes folks, that’s right – at the lowest spot price on record. It’s still in port but you can see where the Anangel Explorer is and follow its journey at MaritimeTraffic.com.
Oh, and iron ore hasn’t stopped tanking. David Scutt says the $40 horror line is in sight.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
I saw some interesting analysis from Bloomberg on the seasonality of the US stock market yesterday. This shows that on average, the Santa rally does not get underway until the middle of December. There’s a tendency to have a bit of a downward correction for a week or more leading into the beginning of the Santa rally.
Against that background our biggest stock has reached an interesting chart level. Yesterday’s peak was exactly at the level where the latest CD swing equalled the AB swing that preceded and this coincides with the 61.8% Fibonacci retracement level. This is a classic chart turning point and could signify a correction for the broader market leading into a final Santa rally.
It’s a neat scenario but the strong upward momentum of the last 2 days dictates a bit of caution. I’d want to see this confirmed as a turning point with the share price falling below yesterday’s low at $80.78 and so starting a new downtrend by clearly making both lower highs and lower lows.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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