Stocks in Europe and the US shook off the selling in Asia on Friday after news broke that the Chinese securities watchdog was investigating three firms. That saw the Shanghai market off more than 5%. Losses were less than a third of a per cent in most of Europe, while in the US the tone was mostly positive in shortened trade.
While that left the SPI200 indicating no change today in Australia, recent volatility suggests that’s unlikely.
On forex markets the Euro ended the week in poor shape and that took the Australian dollar and other currencies lower. Gold was crushed, oil pulled back and base metals rallied, but couldn’t hold onto gains.
First the scoreboard:
- Dow: 17,798, -14.90 (-0.08%)
- S&P 500: 2,090.11, +1.24 (+0.06%)
- SPI200 Futures: 5,206, -1 (+0.0%)
- AUDUSD: 0.7230 +0.0020 (+0.28%)
And now, the top stories:
1. The huge week of data and events. In Australia and around the globe traders will be on tenterhooks with a massive week of data releases and events. Australia gets inflation data today, the RBA tomorrow, Q3 GDP Wednesday, trade Thursday, and retail sales on Friday. RBA governor Stevens says it’s too soon for an RBA rate cut but the data will set the scene for year-end trading.
Offshore it’s a competition between Thursday’s ECB meeting, Friday’s OPEC meeting and US non-farm payrolls for the week’s key data event. Chinese and global PMIs are also out this week and there’s a speech from Fed chair Janet Yellen, a number of other speeches from Fed officials, and a raft of other data. Read all about it in the markets diary here.
2. What’s next for Australian stocks? The ASX 200 lost around 1% last week with materials the big loser, down almost 5% as BHP came under intense pressure. That fall, although small, will have highlighted to traders the importance of overhead resistance after prices (in SPI200 terms) failed to sustain a break of important trendline resistance almost daily.
That means a break, if it comes, could be a good one, but it has to break first and that probably needs the S&P 500 back up and through 2100.
Traders will be taking particular interest in Slater and Gordon, which dropped another 26% on Friday and BHP as the price closes in on the GFC low.
Here’s the ASX futures chart:
3. Can the Aussie dollar resist a US dollar on the march? Last week was a good one for US dollar bulls as the divergent outlook for the Fed and ECB saw the Euro get crushed. At 1.0588 it’s opening the week at it’s lowest level since April. That’s dragged the Pound (1.5030) to a similarly low level and knocked the Australian dollar from its perch above 72 cents.
0.7194 is hardly weak but don’t forget that just last week JP Morgan reiterated their call that the Aussie is headed back under 67 cents. There are also growing calls if the Aussie doesn’t fall again soon, or at least in response to the expected Fed tightening on December 16, the RBA will cut in response next year. We’ll see.
But for this week forex traders are focussed on a weak Euro, the ECB meeting, and whether it means a crashing Euro.
4. Time to buy commodities? Last week saw a big sell-off in industrial commodities on the Shanghai Futures Exchange. It went global for a brief minute before the buyers roared back into the market. At weeks end though prices were off their lows but also off their recovery highs. That’s disquieting.
But the analysts at Deutsche Bank reckon the recent rout is a good sign and markets could be back in balance. Their read on copper is particularly encouraging. More here.
5. It’s China IMF day. The RMB has been slowly drifting lower (USD/CNY higher) over the past few weeks. That’s taken the RMB to its weakest level since the surprise devaluation back in August.
Markets haven’t seemed to notice, or don’t care. Perhaps that’s because the IMF is going to vote, and approve, the inclusion of the Chinese currency in its SDR basket tonight. It’s part of China’s economic progression and as important as when they joined the WTO in 2001. For traders, it’s important because it’s part of the path of reform, and rebuilding, the Chinese economy the President and Premier are on.
That means short-term risks to growth in China remain, but the long-term future looks bright.
6. China’s regulators caused the stock market to tank Friday. News that the regulator was investigating three securities firms saw the selling accelerate on the Shanghai exchange on Friday afternoon. That left the composite index down 5.48%. European and US markets largely shrugged off the move but it dragged stocks across Asia lower and traders will be watching the action again today.
Here’s the chart:
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
On Friday Oroton announced that the new financial year has begun well with positive like for like sales over the 17 weeks since 1 July. This is another encouraging sign for the consumer discretionary sector. Positive guidance by the owner of the Oroton; Polo Ralph Lauren and Morrissey brands follows solid sales results from David Jones and Myer. The result was a 9% jump in the share price on Friday.
The 10 week moving average has done a good job of defining the trend in this stock over the past year. Since the uptrend got underway in August there have been 3 neat pull backs to this average.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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