– A huge night last night for currency traders as the US dollar was absolutely poleaxed. This morning the euro is back near 1.37 and sterling (GBP) is trading above 1.71 for the first time since late 2008. It is a classic example of what can happen in low vol markets as traders become complacent with levels and then someone decides to drive against them. We end up with a break and a reversal of positions.
– That is what appears to have happened last night after San Francisco Fed President Williams said the Fed is on hold for “some time” which – regardless of where the euro sits and what the ECB may do this week – gave traders an excuse to drive the US dollar down to its lowest level in six weeks. Perhaps also the fact that EU inflation at 0.5%, as expected, wasn’t worse also helped.
– This is exactly the type of market that has me sitting in cash, and worries people like Henry Blodget who has written another excellent warning on stocks overnight. It’s a market that has central bank analysts saying that stocks are in euphoric territory.
– But for the moment, stocks in the US and Europe remain high, rates low and volatility nonexistent.
– Looking overnight then, the Dow was 0.15% lower to close the quarter at 16,827. The Nasdaq rose 0.23% to 4,408 while the S&P 500 slipped just one point to 1,960.
– In Europe, somehow the DAX rose 0.18% to 9,833 even though German May retail sales missed expectations by a huge margin, printing -0.6% against expectations of a rise of 0.7%. This saw the year-on-year rate decelerate from 3.2% to just 1.9%.
– Elsewhere the FTSE was down 0.2% to 6,744 while the CAC in Paris lost 0.32% to 4,423. Spanish stocks dropped 0.33% and the FTSE MIB was 0.17% lower.
– But weakness elsewhere hasn’t hurt the SPI 200 futures, with the September contract up 9 points to 5,363 after a poor day yesterday. Iron Ore tanked again overnight which might hurt the miners today.
– In Asia yesterday, news that the Chinese Central Bank will ease rules on loan-to-deposit ratios in the banking system, a measure and control of leverage, was huge news and helped the Shanghai exchange gain 0.56%. Strangely, given the strength of the yen, the Nikkei was up 0.44%. Today is a big one in Asia with the release of the Tankan in Japan and both the national and HSBC manufacturing PMIs in China.
– On bond markets, US 10-year rates are at 2.53%, German 10-year Bunds fell 2 points to 1.25%. In Italy, Spain and the UK, rates rose between 2 and 4 points.
– On Currency markets, as noted above, the the US dollar fell out of bed and the euro is at 1.3693, sterling is 1.7109 and USDJPY is at 101.29. The Aussie dollar lagged the strength elsewhere and sits at 0.9429. No doubt part of this lag was the RBA meeting and governor’s announcement this afternoon which may be more dovish than the last statement if the recent minutes are a guide.
– On Commodity markets, Iron Ore is down $1.58 tonne to $93.68 for September delivery. Fortescue’s CFO reckons it will recover. Newcastle Coal for September continued its rally, rising another 20 cents to $71.55 tonne. Gold is finally trying to break a really big trend line and is at $1325 this morning on the back of a weak US dollar while Silver is at $21.02. Copper rallied 4 cents to $3.19 but extra plantings saw the Ags get absolutely pummeled. Corn dropped 4.23%, Corn lost 3.5% and Soybeans were 2.2% lower.
On the data front, the new financial year opens with the Chinese and Japanese data, the AiG PMI and of course the RBA decision this afternoon at 2.30pm. Offshore, its Markit PMIs across the globe along with ISM in the US and construction spending.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Technical traders got a neat sell signal when Qantas rejected trend line resistance and the 50% retracement level at $1.43.
This peak seems a distant memory after Qantas released its May operating statistics yesterday. These painted a picture of disappointing domestic travel numbers combined with stiff competition for the business of Aussies travelling overseas.
From a technical point of view, the move below the February peak at $1.28 is a sign of weakness. This and the fact that the slow stochastic (see box below the chart) is now heading down from the overbought zone above 80% suggest potential for lower prices yet.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC