Good morning. Here’s what you need to know.
– In a testament to the way in which Mario Draghi has reshaped the debate about the future of Europe, markets have shrugged off the election of the Nationalist Syriza government in Greece and its calls for a big haircut of Greek debt. Indeed, even though German Chancellor Merkel barely acknowledged the new government, let alone congratulate them, the DAX and other European bourses were all higher overnight.
– The strength of the major markets of Europe stands in contrast to the fall in the Athens exchange, which the NAB reports is down 3.2% overnight, and the rise in Greek bonds rates. Both are entirely rational but the fact they are quarantined shows how far Europe and the euro project has come under Draghi.
– Indeed another example of how things have changed, or perhaps how much is already priced into the US dollar, is the fact that while Australia had the day off, euro traded down below 1.11 again before rebounding to sit on 1.1266 this morning. That’s a huge move and while it’s unlikely to mean that the euro’s fall has ended suggests the time for a reversal of fortune may be coming to Forex land. German Ifo helped as well, showing an improvement in business conditions, with the current assessment increasing from 110 to 111.7.
– Turning to the US and the approach of one of the biggest storms ever to hit New York has kept traders somewhat less ebullient than their European counterparts. As the NAB noted in Market Today, “it was a run of especially severe cold weather that deflected the US economy off course for a time in the first part of last year.” GDP for Q4 is due out this week and could be huge – but strength is already priced in and what’s important now for stocks and other markets is the timing and path of Fed tightening. Which means the Fed meeting Tuesday/Wednesday is important and also a likely source of caution for traders.
– So at the close, the scoreboard in the US reads:
- Dow Jones up 0.04%, 6 points to 17,679
- Nasdaq up 0.3%, 14 points to 4,772
- S&P up 0.25%, 5 points to 2,057
– European markets besides Athens were higher.
At the close:
- London(FTSE 100) up 0.28%, 19 points to 6,852 (NB: Mark Carney gave the UK a warning at Davos that he’s not that far behind the Fed)
- Frankfurt (DAX) up 1.39%, 148 points to 10,978
- Paris (CAC) up 0.74%, 34 points to 4,675
- Milan (FTSEMIB) up 1.16%, 237 points to 20,757
- Madrid (IBEX) up 1.08, 115 points to 10,696
– Locally the ASX futures for March are up 8 points to 5,453 suggesting it should be a better day. But this is tempered by another big fall in iron ore overnight to fresh lows for this cycle, placing miners under pressure once again.
– In Asia yesterday, the Nikkei dipped 0.24% for what appears no good reason really, although some reports claim that it was because of the Syriza victory in Greece. But 0.24% down to 17,469 is just noise. It was a different story in Shanghai though, with the SHCOMP hitting a 5-year high of 3,383, up 0.93% or 31 points. Bloomberg reports the catalyst was expectation that tech companies will benefit from government spending on defence. In Hong Kong, stocks rose 0.24%, 60 points to 24,910.
– Bonds were a little higher in the major markets with US 10s up 4 points to 1.83%, German Bunds up a similar amount to 0.36% while UK 10-year Gilts were up 3 points to 1.51%.
– On currency markets, after the US dollar strength of January, it’s worth asking if all the good news for the big dollar, and bad news for every other currency, is already in the market and could a reversal be in the offing? Last night could be the first sign. Or it could just be the pause that refreshes the dollar bulls before they kick off and start selling euros, pounds and Aussie dollars. As I write, the Aussie dollar is at 0.7920, euro is at 1.1242 while GBP is back up at 1.5088.
– On commodity markets, the new Saudi king pledged to follow the existing oil policy while the OPEC secretary general said that “Now the prices are around $45-$50 and I think maybe they reached the bottom and will see some rebound very soon.” In trading terms that’s called booktalking and overnight Nymex crude dipped 1% to $45.13 a barrel. Iron ore has been crushed again with March down $1.96 a tonne to $61.73. Coal is under pressure as well, falling 95 cents to $59.35. Gold is lower also, back at $1,280 an ounce. Copper rallied a little to $2.54 a pound.
On the data front today we’ll have the NAB business survey and the ANZ’s weekly consumer confidence survey in Australia this morning. Tonight sees the release of UK GDP, durable goods in the US as well as consumer confidence.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Surf wear brand owner, Billabong has a lot of private equity interest on its register but Friday’s sell off looked pretty significant from a chart point of view. The stock gapped lower, breaking below a couple of well-established trend lines. The 200 day moving average looms as possible support around 59c. However. if that level is clearly taken out it would start to look like a retracement of the major rally is underway bringing the 38.2% Fibonacci level at 49c into play.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC