– It was a more cautious end to the quarter than I expected on global markets overnight with more risk aversion and less stock market bullishness. Even the US dollar – which was hammering the Aussie, Euro and others in late Asia/early Europe – managed to be rebuffed by US traders. It closed stronger on the day but off the lows. If there is one trend that continued as it has for many months now it is commodity weakness. Crude fell again, copper has lost 12 cents from last week’s high and iron ore is still tanking.
– Locally the big news is the fall in iron ore and what that will continue to do to the federal government’s coffers. Rumours in the market are that the treasurer has lowered the forecast for iron ore to $50 a tonne in the budget papers but even that seems optimistic given current price moves. Iron ore won’t fall forever – particularly given that the Chinese are now trying to use housing to help rescue the economy. That’s important because Chinese construction uses the largest percentage of Australian iron ore than any other activity. The enduring fall in iron ore and the recognition that China is continuing to slow is hurting the Aussie dollar which traded down below 76 cents again overnight. It just has it’s head above that level at the moment. But the market knows, and Annette Beacher from TD Securities has pointed out, that the last time the iron ore price was down here the Aussie was trading at 64 cents. So don’t expect the pressure to be released anytime soon. Unless the US dollar reverses again.
– The fall in the price of iron ore has had a corollary with expectations of an RBA rate cut next Tuesday. David de Garis, senior economist at the NAB, says in his morning note that “market has increased its pricing for a rate cut next Tuesday to 74%, up from 60% at the start of the week”. Personally, I think the RBA should wait. The Aussie dollar is not a one-factor model based on the price of iron ore and yesterday’s consumer confidence is showing signs that the second half of the year is looking better if the government can deliver a solid, no fear, no shock budget. But I concede the RBA has a very strong easing bias.
– Looking offshore for a moment EU wide CPI printed as expected at -0.1% year on year in March while German unemployment came in at 6.4% (yes, the dame as Australia) while retail sales fell less than expected in February, down just 0.5% against the 0.8% fall expected. Overall EU unemployment printed 11.3%. UK GDP came in at 3% year on year, up from the 2.7% expected with a quarterly print of 0.6% beating the 0.5% expected and some upgrades to previous quarters. Data in the US was pretty good with consumer confidence crushing expectations with a print of 101.3 from 96 expected. Chicago PMI was disappointing however with a print of 46.3 against 51.5 expected.
Here’s the overnight scoreboard:
- Dow Jones down 1.11% to 17,776
- Nasdaq down 0.94% to 4,900
- S&P down 0.88% to 2,067
- London (FTSE 100) down 1.72% to 6,773 (oil companies weighed)
- Frankfurt (DAX) down 0.99% 11,966
- Paris (CAC) down 0.98% to 5,033
- Tokyo (Nikkei) down 1.05% to 19,206
- Shanghai (composite) down 0.99% to 3,749
- Hong Kong (Hang Seng) up 0.18% to 24,900
- ASX Futures (SPI June) down 32 to 5,852
- AUDUSD: 0.7607
- EURUSD: 1.0738
- USDJPY: 120.07
- GBPUSD: 1.4819
- USDCAD: 1.2676
- Crude: $47.95
- Gold: $1,183
– Iron ore, crude and a poor lead from offshore sets up a weak start for the new quarter for the ASX 200 today. There are a number of competing forces but with only two days before the Easter break its seems unlikely traders will step too far off the path set by global markets. Technicals suggest another test toward the very recent low of 5,828. We’ll see how it goes then.
– The Yen is doing well at resisting the US dollar strength which is seeing it rise against the Euro, GBP, Aussie and others. The Nikkei doesn’t like that too much which is partly why, along with end of quarter squiring, the Nikkei dipped yesterday. Shanghai was interesting given it was in the black until the dip after lunch. That’s noteworthy given that China is bringing back deposit insurance. Reuters reports that:
Deposits of up to 500,000 yuan ($80,658) will be insured under the scheme, which is expected to help reduce financial risks and protect the rights and interests of savers, the State Council, or cabinet.
The interesting thing about this – and perhaps why stocks dipped – is that explicit deposit insurance, with an upper limit, means that Banks CAN fail and the government won’t bail everyone out fully as is currently the belief. That means more risk, not less, for dealings with the more ‘speculative’ end of the banking system.
– On currencies the US dollar roared higher yesterday sweeping all, except the Yen, before it. The Aussie is the most tenuous this morning without almost anything to recommend buying it. Euro is struggling again as the Greek mess is getting ugly once more and Sterling is simply caught in the maelstrom.
– On commodity markets Nymex crude dipped again losing 1.95% overnight to $47.73 a barrel. Copper lost 1.43% to $2.74 a pound and gold recovered a little and held above important support to sit at $1,183 this morning. Iron ore is down as mentioned above while Newcastle coal for June delivery is down 35 cents a tonne to $54.85.
On the data front this morning we get the release of the AiGroup PMI before building approvals at 11.30 AEDT and then a raft of HSBC and Markit PMI’s around the globe. The ISM is out in the US tonight as well.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day:
Resmed completed a 5.5% correction last week. This is as big as any correction it’s seen during the 78% rally that began in October.
While, Resmed will benefit from current weakness in the Aussie Dollar, the MACD indicator in the box under the chart is flashing an amber warning sign at this stage. Unless the share price continues to rally strongly from here, we look like getting divergence between the MACD and price. Any price peak in the near future will see the MACD momentum indicator in the box below the chart starting to make lower highs. On the price chart we could see either a double top or slightly higher highs.
MACD divergence signals potential for either a period of choppy sideways movement or a full blow downward correction. As a growth stock, Resmed is going to be priced at high multiples but at 28 times F16 earnings at the moment, it wouldn’t be hard to see a situation where divergence could lead to a pull back towards $8.50.
Ric Spooner, chief market analyst, CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC