Stocks held onto their rally in the US even though the non-farm payrolls had a massive print of 242,000.
That left the Dow above 17,000 for the first time since January 6, while the S&P 500 closed so close to 2000 – 1999.99 – we might as well call it that. In Europe, stocks had a better day which leaves the rally on the ASX set to continue into its 5th day after the March SPI 200 futures gained 36 points, 0.7%, to 5,121. Add in the fact that BHP rallied more than 9%, and Rio Tinto almost 6% in London on Friday night and it’s likely to be a good day today on the ASX.
On forex markets, the US dollar gained no support from the big jobs numbers as traders appeared to focus on the earnings miss as hourly earnings dipped 0.1% on the month. That helped the Australian dollar rocket up and through resistance and it’s above 74 cents this morning.
On commodity markets, crude is up near $36 a barrel, copper is back at $2.26 and commodities more broadly are stronger with the CRB commodity index 2.13% higher on Friday. Gold is hanging tough around $1,260 an ounce.
Here’s the scoreboard (7.15am):
- Dow: 17,006, +63 (+0.37%)
- S&P 500: 1,999.99, +7 (+0.33%)
- SPI200 Futures (March): 5,121, +36 (+0.7%)
- AUDUSD: 0.7407, +0.0058 (+0.78%)
The top stories:
1. The Australian dollar could be about to roar – here’s a target. How strong is the Australian economy really? We might be about to find out as the Australian dollar breaks up and out of its 5-month trading range with a close on Saturday morning of 0.7440 — the highest level since July 2015. The battler has been bid for months now as its AAA status, strongish growth and highish interest rates recommend it to offshore buyers who were caught short looking for a test to 65 cents.
There are still many headwinds for the Aussie and questions to be answered about the sustainability of this move. But ask any technical trader what a natural reaction could be and they’ll say, “maybe the 38.2% Fibonacci level”. In layman’s terms, that 78 cents! And as the chart shows it’s not much of a bounce in the context of the Aussie’s big fall. I’m not pinning my hopes on that just yet but who knows?
2. How far can stocks run if a stronger US jobs market could force the Fed to act? US non-farm payrolls blitzed expectations with a print of 2420,000 jobs in February. It crushed expectations of a 192,000 print and continued the remarkable run for the US jobs market (December and January were both revised up 30,000). This is the most intriguing question in financial markets at the moment. Just a month or so ago, the Fed was being decried because it was said to have acted pre-emptively, and in a doctrinaire manner, it was being blamed for all the woes in global markets. But the reality is zero interest rates in the US were, as are current levels, incompatible with the strength of the labour market and growth of 2%.
Which is all a long-winded way of saying can the rally in risk and stocks continue as US data continues its recent run of topside surprises? Or, will the economy now be deemed sufficiently strong to withstand further rate rises? Traders will be wondering at what point does the Fed recalibrate, as it has seemingly already recalibrated expectations for rate rises in the US. March 17 is not that far away now.
3. Bonds and debt are always at the heart of every crisis and former BoE governor Mervyn King says they will be again. Ben Moshinsky reported over the weekend that King said “I don’t think it will be a crisis in the banking system. There could be a crisis in China, or it could be in emerging market debt, or it could be in European debt — either way I think debt will be at the heart of it.”
And as a warning, he added “another crisis is certain, and the failure… to tackle the disequilibrium in the world economy makes it likely that it will come sooner rather than later”.
4. Stocks might be bid because oil is recovering but Moody’s says the industry is still in strife. Crude is around $10 a barrel, 38%, off the February low with a close of $35.92 on Friday night. That’s helped fuel the risk rally in stocks and turn overall global market sentiment. But the industry still has some big issues, according to credit rating agency Moody’s. Dave Forest, from OilPrice.com, writing on Business Insider US, reports that an “Oil and Gas Liquidity Stress Index” Moody’s has a proprietary indicator is flashing red. Forest says it’s a measure of the number of energy companies that are facing looming credit problems because of overextended debt.
Moody’s said that its Stress Index rose to 27.2 per cent as of this week, marking the highest level ever seen. What’s it mean? The default rate in the industry is going to keep climbing. Maybe that’s part of the healing process, as it will take production out of the market. But it could pose problems for the banking sector.
5. What exactly does China softening its growth target mean for markets? Over the weekend China downgraded the growth outlook to a range of 6.5-7.0% from last year’s target of around 7%. That’s a big move. Not because the sort of, kind of, lower rate reflects the slowing economy. Rather China is trying to signal to local officials to stop fudging the data by taking away a specific growth target point. State news agency Xinhua said as much specifically. In moving away from the specificity of a point forecast, China also has room to guide the GDP growth lower across the year without startling traders.
But in many ways markets are an exponential discounting machine. So the question for this week is will traders automatically believe Chinese growth is slowing and Beijing just doesn’t want to tell us? Perhaps. But the market is predisposed to positivity at the moment so perhaps this is one for the back burning, and this week’s data releases.
6. And it’s a big week ahead for markets and traders – here’s my diary of the key events. Chinese trade and inflation data, an ECB meeting widely expected to drop rates further into negative territory, and the two best behavioural economics indicators in Australia – the NAB business and Westpac MI consumer sentiment surveys – are just some of the highlights in another big week of data and events. You can find my wrap of the outlook here.
And the overnight data round-up (courtesy BNZ Markets)
AU: Retail sales, m/m%, Jan: 0.3 (0.4 exp)
US: Non-farm payrolls (chg ‘000), Feb: 242 (195 exp)
US: Unemployment rate, %, Feb: 4.9 (4.9 exp)
US: Avg hourly earnings, m/m%, Feb:-0.1 (0.2 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
The US FDA approved CSL’s haemophilia treatment, Idelvion on Friday night. This formalises the approval process and opens the way for what looks to be a significant new product for CSL. In the meantime, Friday’s stronger $A presents some offsetting bad news for the stock given that it reports in $US.
Support around $100.50 is the dominant feature on this chart’s landscape.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC