It’s not a spectacular rally. But it was positive price action nonetheless in US stock markets overnight as the S&P 500 continued grinding upwards.
Positive price action in front of what is going to be a very important non-farm payrolls tonight is a good sign for the local market today. Although after two pretty solid days of rising prices, the SPI 200 March futures is only up 5 points today.
But the Aussie dollar is up strongly again as traders reacquaint themselves with the positives of Australia in a world struggling for growth. The battler is sitting at 0.7359 this morning. That rally was helped by the weaker US dollar which was hit by services PMI and it seems Mitt Romney’s attack on Donald Trump (although that apparent timing could be coincidence). That’s left the euro back in the mid 1.09s and sterling close to 1.42. USDJPY hasn’t moved much.
On commodity markets, crude’s gains faded such that it is largely unchanged at $34.69 a barrel for WTI. Gold is strong though, super strong, at $1261 back near recent highs. Iron ore took a tumble however, while copper is back at $2.21 a pound.
Here’s the scoreboard (8.04 am):
- Dow: 16,943, +44 (+0.26%)
- S&P 500: 1,993, +7 (+0.34%)
- SPI200 Futures (March): 5,085, +8 (+0.2%)
- AUDUSD: 0.7359, +0.0068 (+0.93%)
The top stories:
1. The Australian dollar is ripping higher again. 0.7374! That was the high overnight and the Aussie is only a little lower this morning. That means the Aussie is trading at its highest level since December 4 last year. That’s because traders have found renewed appetite for owning Australian dollars after the GDP print this week and a little US economic weakness.
Likewise don’t underestimate the draw of AAA rated 10-year Australian government bonds at 2.54%. That’s something I discussed in my look at the Aussie’s prospects at AxiTrader yesterday now that it is above the 200-day moving average for the first time since 2014. That in itself is enough for many traders.
2. The global manufacturing slowdown is spreading to services. Oh, this is getting ugly. Manufacturing across the globe has been in the doldrums for some time. But developed economies are by and large service based. So while the markets focus on the release of manufacturing PMIs each month, it’s the services I’ve been watching more closely.
The bad news is that data over the past 24 hours shows global services industries are under pressure. Europe can’t stop the rot. In the UK, services PMI hit the lowest level in three years and then in the US last night we saw that the manufacturing slowdown is spreading with the Markit services PMI printing below 50. That’s the first fall into the contraction zone since October 2013. No wonder the US dollar is getting crushed.
3. Europe is lost, monetary policy has failed – they aren’t alone. Will Martin has one of the best pieces I’ve read about the difficulty Mario Draghi and the ECB face at next week’s meeting trying to do something that will kick start the EU economy. Monetary policy looks like it is at the end of its tether, so the question is what can they do?
The trouble is, as the Bank of Japan knows all too well, low inflation, deflation, low growth and a moribund economy can persist far longer than conventional monetary policy operations would suggest.
My suggestion. Central banks should buy oil and drive the price back to $55. That might make a difference to inflation and with it, everything else.
4. Soc Gen: Trump and Britain leaving the EU are the same thing. This won’t be a revelation if you read this note every day. You’ll already see the behavioural link between the two issues. Throw in the Irish and Iranian elections last weekend and you can see the disaffection of the populace with the mainstream.
Soc Gen’s uber-bear Albert Edwards reckons what is driving the recent political reactions in the US and UK is that working-class whites feel disenfranchised from the economy in their respective countries, Bob Bryan reports. This is important folks, because Brexit could roil markets in ways none of us really understand fully yet. A Trump victory in the US is another thing entirely.
5. China! Markets are not getting the buffeting they had been earlier this year from China but that doesn’t mean the flow of data or the outlook is no longer important. It’s just that traders factored in Armageddon, but the world didn’t end, so they are more sanguine than pessimistic at the moment.
David Scutt has written an insightful piece on the housing market and the fact it’s the new stock market casino. He also highlighted that Moody’s is looking at downgrades for China’s biggest companies as well as cutting China’s country’s rating itself.
We also know that China’s economy looks weak and unstable but according to Linette Lopez, the conversation around China is changing from one of hard landing to one about can the authorities do enough to stop the dive. Believe it or not, I find that encouraging. I’m in the camp that says China will pull off the transition, so to the extent the markets has stopped focusing on extreme negatives, it helps explain a little of why markets appear to be healing – at least for the moment.
6. Non-farm payrolls tonight is the most important data point for the month. Aussie dollar rally, stocks surge and falter, bond prices down (rates up), expectations of no Fed rate hike anytime soon – basically any theme running through markets save the oil and gold recoveries – could end at 12.30 am tonight when US non-farm payrolls are released.
Akin Oyedele has a quick guide to all you need to know about this month’s jobs report here. The key is the market is expecting 195,000 jobs to be created. Any deviation from that and we’ll get a reaction.
And the overnight data round-up (courtesy BNZ Markets)
NZ: Building work put in place (q/q%), Q4: 2.5 (2.0 exp)
AU: Trade balance ($m), Jan: -2937 (-3200m exp)
CH: Caixin PMI Services, Feb, 51.2 (52.0 exp)
UK: Markit services PMI, Feb: 52.7 (55.1 exp)
EC: Retail sales (m/m%), Jan: 0.4 (0.1 exp)
US: ISM non-manuf, Feb: 53.4 (53.1 exp)
US: Factory orders (m/m%), Jan: 1.6 (2.1 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
Buying of Australian bank stocks has certainly had some urgency about it over the past 3 days. Westpac, for example, is up 9%. There was a big gap higher at the open on Wednesday and each of the last 3 sessions has finished at or near its high. You’d have to think short covering was in the mix there somewhere.
That said a couple of key technical levels are looming. The first is around $31.50. That level sees the 200 day moving average coincide neatly with a couple of key Fibonacci levels in the 61.8% retracement and a 127% ABCD projection. If the share price sails through this, $32.50 becomes a level of interest. Here the past trend line support coincides with the 78.6% retracement and the 161.8% ABCD projection.
Westpac is currently trading on a forward PE of around 12.5 compared to an average of about 13.3 since the beginning of last year. On that basis it’s still on the cheap side at $31.50. Given recent strong momentum $32.50 does not look too much of a stretch. A typical trader’s approach would be to use a trailing stop once $31.50 is hit looking to run the trend up to around $32.50.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC