Your morning market update includes a fall for gold and a Shutdown rally for stocks.
– I’m told that your body builds up a resistance to coffee, chilli, alcohol and pain. Based on overnight market action we can add “US Capitol Hill shutdowns and associated political grandstanding” to the list because stocks rallied, rates were up, both in the front and back end of the US curve. Yet gold – the ultimate safe haven in times of trouble – was absolutely poleaxed. What a strange market it is that has evolved since the first Greek troubles in mid 2010.
– So at the close, the S&P 500 was on a tear, up 13 points or 0.80% to 1695 but still below 1700. The Dow rose 62 points or a more modest 0.41% and the Nasdaq was 1.23% higher.
– In Europe, Milan was sharply higher after it emerged that some of Berlusconi’s party members weren’t going to follow his lead in Parliament and so the Government may not collapse. Stocks rose 3.11% as a result. The FTSE was flat but the DAX rose 1.10%, the CAC was 1.29% higher and Spanish stocks in Madrid rose 1.70%.
– Perhaps it was the weaker-than-expected data prints from the raft of PMIs that were released overnight and the impact that will have on interest rates in the EU (and probably at the Fed) that helped stocks. Or maybe it is just pessimism fatigue – either way you have to ask what can knock this market sustainably off its perch. Seems only a real Taper at present or maybe a US default if it happens in a few weeks’ time.
– Forex markets, however, saw the US dollar under pressure with Euro up at a multi-month high of 1.3588 overnight before pulling back to 1.3527 for a largely unchanged day. GBP roared to 1.6260 but then drifted back to 1.6195 and USDJPY sits at 97.96, down a little after a raft of announcements from the Abe Government yesterday about increased sales tax and stimulus measures, not to mention strong Tankan data.
– The Aussie dollar gets its own section this morning because it is the only material mover in FX land, up 0.84% on yesterday at 0.9393. That’s off its high of 0.9435, no doubt, but a cracking performance regardless. Of course the big driver was the RBA’s seemingly upbeat tone in the Governor’s Statement yesterday afternoon and the expectation that if the RBA doesn’t have a tightening bias, at least they have lost their easing bias. Coming on top of the big jump in the AiG PMI and retail sales, it was very positive for the Aussie and it’s going remain well supported unless stocks fall out of bed.
– On Commodities, Gold fell out of bed on what looked like technical induced position squaring and at $1287 it has hit technical targets now. Crude fell 0.66% and Copper dropped 5 cents to $3.27 lb.
– Closer to home, the SPI 200 Futures on the Sydney Futures Exchange are up 23 points to 5231 while the 3- and 10-year bond futures both fell 4 points, implying a rise in yields of the same magnitude.
On the data front today, expect ANZ Commodity prices in New Zealand then building permits, HIA new home sales and trade in Australia before EU PPI tonight and then the crucial ADP employment change survey as a precursor to Friday’s non-farm payrolls. The CBA has a press conference as well but we don’t expect too much from that.
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