Good morning and welcome to your week.
– The Prime Minister’s speech at the Press Club today is going to be a must-watch for everyone in Australian markets. Not so much because it will move markets but because the PM’s performance, and whether he stays or goes, is going to move the dial on confidence in the economy. If the PM can genuinely restart his prime ministership, then consumer and business confidence can recover and with it, the domestic economy will get stronger. More of the same however and the Australian economic outlook this year remains cloudy at best.
– “Cloudy” seems to neatly sum up the outlook for the US economy as well, with Q4 GDP missing expectations by a mile on Friday night. The print of 2.6% was well below the 3.3% annualised rate and a big step down from the 5% pace we saw in Q3. Of course, this is the preliminary estimate and it will be revised over the next two months and then through time, but it does show that global growth has indeed stepped down.
– Also showing the global economic slowdown was data out of China yesterday which showed that Chinese manufacturing, as measured by the NBS PMI, slipped to 49.8, from 50.1 last and a big miss on the 50.2 expected. The services sector is still expanding but at a slower pace, with the services PMI slipping from 54.1 to 53.7 – the lowest level in about a year.
– It’s an interesting time in markets, and traders looking for clear signs will be disappointed with the GDP and PMI releases. That’s not to say the Fed is still upbeat with the NAB reporting this morning that “Four out of four Fed speakers who delivered comments on Friday were upbeat on the US economy, and failed to dampen the prospect of rate hikes in 2015.” In one of the more interesting comments, the NAB says that “Richard Fisher, the outgoing president of the Dallas Fed. He argued that dollar strength was positive for US job creation, suggesting it would encourage US corporations, bemoaning the impact on earnings of dollar strength, to bring more jobs back onshore.” That would be superb news for the US and makes the January non-farm payrolls this Friday all the more important in the current environment.
– So at the close, the scoreboard in the US reads solidly in the red
- Dow Jones down 1.45%, 252 points to 17,165
- Nasdaq down 1.03%, 48 points to 4,635
- S&P down 1.3%, down 26 to 1,995 just above the key 1.985/90 support zone
– European markets were under pressure. But, in a sign of how far they have come since Mario Draghi promised to do anything he could to save the EU economy (and its banks), comments from the Greek Finance Minister that the troika is “a committee built on rotten foundations,” didn’t cause outright panic as they might have in the past.
At the close:
- London(FTSE 100) down 0.9%, 62 points to 6,749
- Frankfurt (DAX) down 0.41%, down 44 to 10,694
- Paris (CAC) down 0.59%, 27 points to 4,604
- Milan (FTSEMIB) down 0.44%, 91 points to 20,503
- Madrid (IBEX) down 1%, 105 points to 10,503
– Locally, futures traders took the ASX SPI 200 down 24 points to 5,518. It will be an interesting day given the cross-currents from Friday with a big rally in crude, further weakness in iron ore and a general disquiet in global stock markets.
– Shanghai is unlikely to like the NBS PMI surveys that were out over the weekend and having lost 1.6% on Friday and 4.23% over the week, further losses seem almost assured. The key level to watch is 3,095 which is the one-month low. A break would be an important indicator of a bigger reversal. In Hong Kong, stocks dipped 0.36% to 24,507 while in Tokyo, the Nikkei rose 0.38% to 17,674. Futures indications are that all three markets will be down this morning.
– On rates markets, US 10-year treasuries rallied 11 points to 1.64% – that’s 19 points lower than the high of the week at 1.83%. That is a huge rally. In Germany, the rally continued with the 10s closing at 0.27% after the January CPI fell 1% – that is not a typo! UK 10s closed at 1.33%. This is the story of 2015 and moves like these on bond markets are incompatible with stocks staying where they are given what they say about the economic outlook.
– On currency markets, the US dollar was marginally stronger Friday but this morning the yen has broken lower and is trading at 116.91. USDJPY is the bellwether of sentiment, so if we see a breakdown we’ll know a risk-off move is coming. Watch 115.80 over the next few days. Euro is at 1.1308, GBP at 1.5084 and the Aussie dollar is at 0.7759.
– On commodity markets, crude oil ripped higher on Friday after news that the number of rigs being shuttered in the US and Canada had spike to a combined 105 over the week. This pushed the price of Nymex crude up 7.46% to $47.85. The big question is whether the bottom is in. Elsewhere, copper rallied 1.92% to $2.498 a pound and gold roared almost $30 to $1,283 an ounce. On the bulks, iron ore for March delivery dropped $1.51 a tonne to $61.07 while Newcastle coal for the same month was 43 cents higher to $60.93.
On the data front today, besides the Prime Minister’s speech, the AiG has the Performance of Manufacturing survey is out along with TD inflation data for Australia. Then we get the raft of HSBC/Markit manufacturing PMIs around the globe. In the US tonight, it’s personal consumption data.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Everything has come together for gold miner, Newcrest in recently – an unexpected recovery in the gold price; the weaker Aussie dollar and a better than expected production report. The stock has rallied 60% from its November low.
Friday’s $27 rally in the gold price will be supportive for the stock today. However, Newcrest backed away from the first of a couple of key chart areas last week and may struggle to get past this level for a while. This level around $14 assumes that the latest major swing higher will be the same size as the one that preceded it (AB=CD on the chart below). The stock has also moved into the overbought zone as shown by the stochastic indicator below the chart.
If Newcrest does go on with it from here, $15.75 becomes an area of interest. This represents the 38.2% Fibonacci retracement. At that level the CD swing would provide more Fibonacci symmetry being 127% of the AB swing.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC