– It’s hard to know what’s the story of the night. Is it the end to the US dollar’s multi-week surge? Or is it the big 260-point rally in the Dow? Of course, both these moves are related to the big miss of US February retail sales (-0.6% versus +0.3% expected) and a view that this is enough to temper the Fed’s enthusiasm for rate hikes. That’s the key to stocks and currencies at the moment and it means that the famous “dot-point” chart the Fed will release next week of individual Fed members’ expectations of the path of interest rates will be vitally important for sentiment, moves in currencies and on stock markets.
– Now, of course some might say this paradigm of bad news being good news for stocks is dysfunctional. But the reality is that it is the change in US interest rates that is the potential game changer for the outlook for stocks. That is, if the Fed pushes on with hikes when, as seems the case at present, it is only the employment sector that is showing signs of strength, then rate hikes are a clear and present danger to stocks. If, on the other hand, they remain patient and wait for other indicators like personal spending and retail sales to catch up to jobs then stocks can potentially rally on regardless because the economy can support them. Just in those couple of sentences you get a sense of the debate that will occur around the FOMC table next week. We’ll get the answer at 5am next Thursday morning.
– That means there is still a lot of water which can flow under the bridge. The US dollar bulls may continue to book profits dragging the Aussie, euro and others higher. Likewise, stocks may continue to rally. On this front, it is worth noting that even with the sell-offs this week in the Dow, the VIX index barely moved. That suggested – suggests – that traders just see this as noise with no material threat to the bull market. That’s a very interesting dynamic that screams complacency but may simply reflect the reality that the baton change of QE from the Fed to the ECB remains the key driver in traders’ minds of this bull market in stocks.
– Here’s the overnight global stock market scoreboard:
- Dow Jones up 1.47%, 260 points to 17,895
- Nasdaq up 0.89% to 4,893
- S&P up 1.26%, 26 points to 2,066
- London(FTSE 100) up 0.59% to 6,761
- Frankfurt (DAX) essentially flat after yesterday’s stellar run at 11,799
- Paris (CAC)down 0.22% to 4,987
- Tokyo (Nikkei) up 1.43%!!! to 18,991
- Shanghai (Composite) up 1.77%, 58 points to 3,349
- Hong Kong (Hang Seng) up 0.34% to 23,798
- ASX Futures (SPI June) up 14 points to 5,856
– Shanghai stocks are not far now from the 3,402 high we saw back in January. Driving the excitement are the proposed changes to the rules which will allow banks to act as brokers – kind of a Chinese big bang – and enduring expectations of further monetary stimulus. Indeed, yesterday ANZ’s China economics team released a note saying that there will be another 100 bps of RRR cuts and a 25% rate reduction this year. That combined with the solid new loan data (Y1.02 trillion v Y750 billion expected) suggests the economy is getting traction from the PBOC’s cuts already in the system. That’s good news for the economy and Shanghai traders love it. In Tokyo, the close at 18,991 was a new 15-year high. The big news is the expectation that Toyota is going to grant its employees a pay rise. That sent Toyota shares higher – only in Japan.
– On rates markets, US 10s closed 2.11%, German Bunds sold off – yes, they rose – by 4 points to 0.21%. In The UK, Gilts rallied 8 points to 1.77% (see below for why).
– As noted above, the US dollar suffered its first reversal in ages last night. Raiko Shareef, currency strategist at BNZ, put it nicely this morning saying, “Having broken down through eight big figures in the past eight trading sessions, there was always going to be an ugly, near-term snapback. The dip below 1.05 proved a bridge too far. Or, for the more poetic, it was the 100 level in the US Dollar Index (~57% EUR) that proved too strong. A brief flit to 100.06 late in our session was quickly reversed.” Indeed! So this morning the euro is at 1.0643, Aussie at 0.7710 and USDJPY is at 121.25. The Canadian dollar is at 1.2685 while the pound was the only currency to lose ground after BoE Governor Carney put a bit of uncertainty around the path of BoE rate hikes. GBP is down at 1.4887 as a result.
– On commodity markets, Nymex crude was lower, falling a massive 2.51% to $46.96. Gold is at $1,151 but copper rallied 2% to $2.6595. On the bulks, June iron ore rallied 81 cents to $57.03 a tonne while Newcastle coal for June dipped 30 cents to $58.35.
– On the data front, there is nothing in Australia today but Japanese IP is out and then tonight we get German wholesale prices, Italian CPI, US PPI and Canadian jobs.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Amcor was my stock to watch on Wednesday based on the possibility of a double top style pattern where the first peak is above the upper Bollinger Band and the 2nd is below it. This indicates falling momentum and the potential for a downward correction.
So far there’s been no second trend peak in Amcor and so no sell set up. In fact price has pushed on higher. However, I’ve featured Amcor again today because this set up is still very much in play. Price is still well under the upper Bollinger Band so a trend peak in the next few days could still give a clue about falling momentum even though the price has risen.
The other thing in the mix here is that Amcor benefits from a weaker Aussie Dollar. Give last night’s sharp rally in the Aussie and the potential for an ongoing correction, the chances of a trend peak and downward correction for Amcor look a bit greater.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC