Friday night saw a rip-roaring rally on US stock markets after the strength of the labour market was confirmed with the release of non-farm payrolls.
The print of 211,000 new jobs in November and the upward revision to October’s huge rise seemed to confirm to some traders that the stock market can absorb a Fed tightening this month. Europe missed the rally and will play catch up this evening when it opens, while on the ASX, futures suggest a positive but not great day today.
Two factors which could subdue local appetite for stocks are the dismal trade iron ore had last week dropping 10% and the fact oil, energy, is under pressure again with Nymex crude opening the week under $40 a barrel.
All these factors combined to knock the euro and Aussie dollar off their highs but it was a still a strong week of gains against a weaker US dollar.
First, the scoreboard (8.03am):
- Dow: 17,847, +369.96 (+2.12%)
- S&P 500: 2,091, +42.07 (+2.05%%)
- SPI200 Futures: 5,186, +31 (+0.6%)
- AUDUSD: 0.73 +0.0024 (+0.3%)
And now, the top stories:
1. Santa Claus for stocks? It was a wild week for stock market traders with the Santa Claus rally starting, faltering, and then recovering into week’s end. That left the S&P with a tiny gain of around 0.1%. But even adjusting for the 31 point rally anticipated by ASX futures on Friday night, the local market is still down for the week.
That’s a challenge for traders in a week when we get some important local data. Trade has been volatile lately and that could continue this week as well as traders start to focus on the FOMC meeting next week.
But the reality is that with the S&P 500 stuck just below all-time highs again, the Santa Claus rally needs to kick on to drag the ASX higher.
It might struggle in 2016, according to Credit Suisse. The bank says that it is the most bearish it’s been in 7 years. It isn’t short equity exposure, but has reduced its year-end target to just 2150.
2. No farm payrolls locked the fed into a rate hike. Janet Yellen told us twice last week the risks of not moving and then having to move “abruptly” were too big not to increase rates at this month’s FOMC meeting. But some traders were still waiting on the release of non-farm payrolls on Friday for proof that action would follow words.
In summary, BI US’s Akin Oyedele wrote Friday:
The US economy added 211,000 jobs in November, according to the Bureau of Labour Statistics, beating economists’ expectation for 200,000. Employment growth in October was revised up to 298,000 from 271,000, affirming the month as this year’s best.
There is little doubt now. The Fed is as close to a lock as any central bank can be prior to the actual meeting. Rising Fed rates can change the game in asset markets for 2016.
3. Australian dollar to 68 cents? That’s the view of Westpac’s chief economist Bill Evans who says that his call it will get there by the end of this year is now vulnerable. But he adds that the with iron ore crashing and the Fed about to lift off and start its tightening cycle, it’s a matter of when, not if the Aussie falls. You can read more here.
4. Mario Draghi fights back, euro lower. Mario Draghi gave a speech in New York Friday where he sought to rebuild credibility lost Thursday when he, and his colleagues at the ECB, appeared to under-deliver on earlier promises of more stimulus for Europe. Draghi reiterated that there was “no limit” to what the ECB could do to hit its inflation target adding “we are ready at any time to recalibrate our array of tools”.
Also speaking was ECB vice president Constancio who said both that the “markets got it wrong” about ECB intentions and that he “hoped markets will correct the disappointment reaction when its tools are fully appreciated”.
That knocked the Euro off it’s highs and dragged the Aussie dollar away from resistance at 0.7380/0.74, the October highs.
5. Is crude oil about to crash? The Saudis appeared to send some messages that they would engineer a deal to cap crude production in order to stabilise prices. But at Friday’s meeting, no such thing happened and the cap was notionally increased to 31.5 million barrels a day. That saw crude crash around the world with Nymex crude closing below $40 a barrel for the first time since August.
Traders are now targeting at least a fall to the August lows in the mid $37 region. But Goldman Sachs says oil could fall 50% from here:
The rising probability that markets may need to adjust through “operational stress,” when surpluses breach capacity, leaves risks to our forecast as skewed to the downside in coming months, with cash costs near $20/bbl.
That would really put pressure on the RBA, ECB and others to cut rates.
6. It’s another huge week for markets. Last week was a big one for traders. While the week ahead might lack some of the critical elements of Yellen, Draghi, Opec and non-farms theses players will influence markets again this week. We’ll also get data out of China, NAB Business and Westpac Consumer Sentiment surveys plus Australia’s jobs report. It’s potentially another week of big moves and volatility. Here’s my diary of all the key events and data.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
In a reminder of the strategic attraction of private hospital businesses, Australia’s third largest operator, Health Care Australia has been bought by Chinese investor Luye Group Ltd. The new owner is looking to capitalise on the opportunities provided by the recent free trade agreement to leverage Australian expertise and develop private hospitals in China.
Australia’s biggest private hospital operator and market darling, Ramsay Healthcare, has struggled to gain traction this year. Its share price has been stopped around $68-$69 on four occasions during 2015.
Even so, it’s a quality growth stock and if you are looking for entry opportunities, the chart suggests a number of possibilities. One may be a return to the trend line around $59.50. Above that are retracement levels around $62.60 or $61/$61.60.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC