6 things Australian traders will be talking about this morning

Picture: Getty Images.

Iron ore had an amazing night, rocketing 13% overnight in US futures trade.

That’s taken it back above $60 a tonne and it’s likely to light a rocket under the ASX again today with the SPI 200 futures up 33 points, 0.6%.

BHP and Rio had another good night in London after what was a spectacular day yesterday for local miners.

The positive tone on US markets played its role as well with the Dow up around 50 points even if the S&P is only up marginally. But it’s above 2000 for the first time since early January.

That’s all helped the Aussie dollar as well which is up near 75 cents this morning. The CAD has rallied by around the same amount as the Aussie as crude oil has surged 5.5% in Nymex WTI terms. The rest of the major forex markets have been fairly quiet, although the yen is stronger.

Elsewhere on commodity markets, gold has run all the way up to $1268 this morning and copper’s rally continued – it sits at $2.28 a pound. The positive tone everywhere is driving rates higher in the US and Australia.

Here’s the scoreboard (8.00am):

  • Dow: 17,051, +48 (+0.26%)
  • S&P 500: 2,00.68, +1 (+0.03%)
  • SPI200 Futures (March): 5,157, +26 (+0.5%)
  • AUDUSD: 0.7468, +0.0027 (+0.39%)

The top stories:

1. The Australian stock market is going to break its one-year downtrend today. The last five days of rallies have lifted the ASX from 4870 to a close of 5142 yesterday. That’s a gain of around 5.60% and it brings the gain for the ASX200 since the February lows to a solid 9.30%. But the good news is the market is set to open higher again this morning after another strong night of ASX futures trade and more strong rallies for resource stocks in London.

But ask any trader and they’ll tell you this is where the move gets interesting. That’s because the ASX200 is also likely to test two important technical levels today. The first, the one-year downtrend from the 5998 high comes in at 5,173. Once above that, stocks face a big level at 5,195. That level, the 38.2% Fibonacci retracement, is an important one for many technical traders who will be watching closely. Can the ASX200 break 5,195? If it does, there could be another 150-point rally. But it has to break first.

2. The Australian dollar is still rising. 75 cents – almost – that’s where the Australian dollar is this morning after making a high overnight of 0.7484. It’s another strong performance as the Australian dollar benefits from the continued rally in commodities and the renewed positivity it has brought to markets more broadly.

The Aussie has now broken the top of a long term trading band and a rally, that would match the equivalence of the ASX’s current move, could take it all the way to 78 cents. The RBA will hate that.

3. HSBC says the RBA will cut again and one of the reasons is the Aussie dollar rally. I’ve doing currencies for more than 20 years now and the one thing that amazes me is how it’s been elevated to one of Australia’s favourite sports. By that I mean I find people cheering when it rises and disappointed when it falls. But often that’s the exact opposite to what we should be cheering.

That’s because a stronger Australian dollar tightens financial conditions and dampens growth. So, excepting the once in a millennium mining boom, Australia does best when the Aussie is not too strong. Or at least not too strong for the underlying economic fundamentals. Anyway, near 75 cents, it’s too strong at the moment and that is one of four reasons why HSBC chief economist Paul Bloxham says the RBA will cut rates again – soon.

4. Rich Barry speaks – the NYSE floor governor explains why everyone is bulled up. Rout and recovery, that’s what 2016 has become and there are no signs traders’ renewed ebullience is going to fade anytime soon. Crude is higher, iron ore is roaring, the Australian dollar is closing in on 75 cents – yes folks, 75 not 65 – and even gold has gone bid. Early March is in many ways the polar opposite of early February.

Before we sound a warning in Item 4, here’s Barry’s five reasons why everyone is so bulled up.

5. Even though stocks and commodities are rallying, global policy makers are still worried about the “gathering storm’ for the global economy. The market’s recovery from February lows continued overnight but the storm has not yet passed, according to the Bank of International Settlements – the central bankers’ central bank. Lianna Brinded reports that in a report released over the weekend, the BIS chief Claudio Borio said of recent market turmoil that the “tension between the markets’ tranquility and the underlying economic vulnerabilities had to be resolved at some point. In the recent quarter, we may have been witnessing the beginning of its resolution.”

Beginning folks, beginning. That implies this risk rally will prove transitory. Or, at least that the central bank for central banks is worried enough to suggest so. You can read more here.

Bonus item: Paul Kelly’s song about a gathering storm – one of my favourites. Not all storms are bad.

6. The release of China’s FX reserves showed the smallest decline since last June – back to Defcon 3. I could get on my high horse and rant on the continual doom and gloom China coverage I read every day from thin slicers who never take the time to understand China, its economy, its system of government, or how all of these aspects – and others – intersect with the markets it influences. But I won’t.

Suffice to say, last night’s release of the FX reserve data was not the bear point many hoped, as David Scutt points out here. Kymberly Martin, a currency strategist at BNZ in Wellington, wrote this morning that the data “will provide some relief to those concerned with the rate at which Chinese reserves had been declining, and add to the tentative improvement in sentiment toward China risks”.

The bears’ focus will now turn to today’s all important trade data out of China to be released at 1pm AEDT.

And the overnight data round-up (courtesy BNZ Markets)

AU: Performance of const. index, Feb: 46.1 (46.3 exp)
AU: FX reserves (AUD, b), Feb: 61.2 (61.6 prev)
CH: Foreign reserves (US$, b), Feb: 3202 (3190 exp)
EZ: Sentix investor confidence, Mar: 5.5 (8.3 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

Fortescue Metals

These are busy times for short sellers. After several days of concerted buying in Australian banks, they’ve been obliged to turn their urgent attention to scrambling out of iron ore stocks.

Fortescue gapped above resistance yesterday and closed up 24%. From a chart point of view, this now looks as though it could be a correction of the entire $6.23 to $1.44 decline. If that’s the case, the 38.2% retracement around $3.25 is a point of interest. It’s often the first resting place for a corrective rally. It can also quite often be the ending point for relatively shallow corrections. However, given the momentum of this rally you would want to wait for evidence that the market is going to respect this level. Smashing straight through it is obviously a real possibility.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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