Mr “Whatever It Takes”, ECB boss Mario Draghi, was back in the limelight last night reducing the level of ECB bond buying, but increasing the duration all the way until December 2017.
That promise of QE to – almost – infinity and his comment that he’ll increase bond purchases back to 80 billion euro a month saw the euro trade through a wild range but finish sharply weaker as the US dollar strengthened. That weighed on the Aussie dollar as well.
On stocks, the Trumponomics rally continued with US markets at fresh record highs while the prospects of rates lower for longer in Europe saw those stock markets outperform.
The washup is the ASX 200 looks set to open stronger once again.
Elsewhere oil is stronger as the focus turns to the non-OPEC meeting this weekend. Gold is a little lower and metals are down across the board.
Here’s the scoreboard (8.00am AEDT):
- Dow: 19614 +65 (+0.33%)
- S&P 500: 2246 +5 (+0.24%)
- SPI 200 Futures (December): 5,564 +23 (+0.4%)
- AUDUSD: 0.7459 -0.0011 (-0.13%)
The top stories
1. The US stock market rally is dragging Australian stocks higher again. The ASX 200 rocketed 1.2% higher yesterday and futures traders on the ASX have added another 23 points to the SPI overnight. Add that to the close of 5543 yesterday on the 200 index and prices are getting closer to the year’s high just above 5600.
Even with the strength of the move in stocks since Donald Trump won the election, and the tag-along rally of the ASX, questions of local valuation might start to emerge.
But the chartists will be watching closely. Because if the high gets taken out, a big technical rally back into the 5950/6000 could be on the charts.
2. The RBA keeps warning an Aussie dollar appreciation could “complicate” the economic transition. Here’s why it isn’t right now. Since the float in 1983, the Aussie dollar has been the Australian economy’s shock absorber. Its moves over the past 33 years – lower or higher – have helped smooth out growth and lower economic activity.
Which is why the RBA keeps saying it’s worried if the AUDUSD rallies it will “complicate” the economic recovery. But David Scutt has an interesting piece looking at service exports – which hit a record high in October – and tourism and education in particular and what’s driving them at present. The implication is our customer set may have changed, or the “value” derived means they might be less price sensitive than in the past. Interesting.
3. Look, look. Some good news on China. If you are a regular reader of this note you’ll probably know I often look askance at all the doom and gloom about China. But in general, that’s what most of the coverage has been this year. So this morning I offer you some Christmas cheer in the form of good news about China and its economy.
David Scutt reports that in the trade data yesterday, China gave the clearest signal yet that its economy is bouncing back. According to China’s General Administration of Customs, the value of both imports and exports increased from a year earlier in US dollar terms, the first time that’s been seen since October 2014.
Commodity imports surged, which helps explain the robust prices we are seeing and Scutty says the rebound in both exports and imports reflects improved demand, not only for raw materials but also for Chinese-made goods abroad.
4. The US dollar surged overnight and the euro moved through its second 3-cent range this week after the ECB just signalled QE to infinity. As Will Martin put it, ECB president Mario Draghi and his colleagues on the governing council reloaded their bazooka last night by extending their QE program all the way to December 2017.
Sure, bond markets had a bit of a heart attack when the ECB announced a reduction in the level of bond buying from 80 billion euros a month to 60 billion. But Draghi pretty much fixed that in his press conference. Draghi said they had extended until December and kept a pretty solid number of 60 billion in purchases because “the risks of deflation are much more skewed to (coming) out of deflation. The second reason is the length of time … we want to ensure a reduction in size doesn’t lead to any taper.”
That’s whatever it takes for however long it’s needed, right there.
The impact was that the euro spiked to 1.0872 with bonds. And then collapsed to a low of 1.0598. That’s the second time this week the euro has moved through an (almost) 300-point range on a day. That is not supposed to happen in the world’s single biggest currency pair. But the ECB has reinforced what traders think is going to be an important policy divergence between the Fed and other central banks – so the US dollar surged.
5. Here’s the latest thing scaring the pants off uber-bear Albert Edwards. Uncertainty is poison for markets. At least that’s how it normally works. That uncertainty hasn’t caused bond spreads to widen materially is something that has caught the eye of Soc Gen’s uber-bear Bob Bryan reports.
Edwards says economic policy uncertainty has risen but that hasn’t translated into a material lift in credit spreads. That worries him. Edwards cites work from his colleague Guy Stear noting “given the current level of economic policy uncertainty, global spreads should be twice as wide. This ought to worry the bulls.”
It’s a tough job being, in Edwards words, the Grim Reaper of financial markets. But Edwards often raises good points. This is one of them. The euro doesn’t move 3 cents twice in a week unless uncertainty is high.
6. Nomura Has 10 ‘Gray Swan’ Risks That Could Roil Markets in 2017. Via Bloomberg comes a neat little piece on 10 things Nomura reckons might be “unlikely but impactful events” to throw markets out of kilter.
Number one – Putin on the warpath – is interesting and a little troubling. Others include the chance of capital controls in emerging markets, a punch-up between the Fed and the Trump administration, or even – heaven forbid – Japanese inflation.
These aren’t “base case”, Nomura says. But worth a read regardless.
From Ric Spooner at CMC Markets, here’s today’s Stock to Watch
For chart followers, the next few days might tell us a lot about how likely CBA is to lead a Santa rally in the ASX 200 index from current levels.
CBA has moved above the well-defined $79.20 resistance level that’s kept it contained for a year. However, the move has not so far been convincing. Indeed, as things currently stand, there are grounds to be nervous.
Yesterday, the share price retreated from a level that sets up a potential 3 drives to a high chart pattern. This is a reversal pattern that’s essentially a close cousin of the triple top. The market exhibits “re-testing” behaviour where it fails at around the same level. The difference is that with the 3 drives, price pushes incrementally, but unconvincingly higher each time.
There is also usually, symmetry about these 3 drives patterns. CBA currently qualifies, with the 3rd drive being the same size as the 2nd.
The potentially bearish scenario will be if CBA fails to get above (or far above) yesterday’s high at $80.09 and then falls quickly to fill the gap below yesterday’s candle.
That would make this an “exhaustion gap”
The bullish scenario will be if the 3 drives pattern doesn’t complete and instead, CBA pushes above yesterday’s high with good momentum. With the US financials sector doing well last night, that’s possible. Either way, today could be interesting.
Ric Spooner is chief market analyst at CMC Markets. You can follow Ric on Twitter: @ricspooner_CMC
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