Good morning and welcome to your week.
– Another night of stock market positivity and another night of new highs for stocks in the US. It seems that the looming ceasefire in Ukraine, hope about the Eurogroup meeting with Greece tonight and the unexpected uptick in German (and to a lesser extent, European) GDP in Q4 all fed into a general feeling of positivity which saw the DAX break 11,000 for the first time and the S&P 500 post a record closing high. The Nasdaq closed at a 15-year high.
– This market is a phenomenon. Free money completely reshapes the approach of investors to every piece of news. It’s too trite to say bad news is always good but there are many reports over the weekend suggesting that the fall in US consumer sentiment from 98.1 to 93.6 was actually a good thing for stocks because it could forestall the Fed’s first rate hike. Perhaps it will, perhaps it won’t. But Thursday’s release of the Minutes to the FOMC meeting in January will be very interesting.
– But before we get there we have the Eurogroup meeting tonight. Over the weekend, Greek PM Tsipras said he was confident of reaching an agreement but reiterated that the current harsh austerity measures are being rejected. Clearly Tsipras thinks he’ll have a win, with Reuters reporting he said: “I expect difficult negotiations; nevertheless I am full of confidence. I promise you: Greece will then, in six months’ time, be a completely different country.” Separately, ECB president Mario Draghi said anyone speculating on a Greek “exit from the monetary union doesn’t make any sense”.
– A positive outcome tonight will be another bullish impetus for stocks and lift the euro back toward 1.15.
– At the close, the scoreboard in the US reads:
- Dow Jones up 0.26%, 47 points to 18,019
- Nasdaq up 0.75%, 36 points to 4,894
- S&P up 0.41%, 9 points to 2,097
– European markets at the close:
- London(FTSE 100) up 0.67%, 46 points to 6,874
- Frankfurt (DAX) up 0.40%, 43 points to 10,963
- Paris (CAC) up 0.69%, 33 points to 4,759
- Milan (FTSEMIB) up 0.96%, 201 points 21,204
- Madrid (IBEX) up 1.68%, 178 points to 10,740
– Locally it looks like another solid day for stock traders with the March SPI 200 futures up 29 points to 5,851 at the close on Saturday. We are still in the midst of profit season, as Chris Pash noted in his piece looking at the recent run of results – so there is some local idiosyncratic risk for local stocks. But, the global tide is rising, the outlook for banks looks solid if Westpac is correct about the outlook for housing and housing finance.
– In Asia Friday, stocks in Shanghai ripped higher closing at 3,207, up 0.96% for a gain of 31 points. At on stage, the market had been up 2% at 3,237 but it pulled back after lunch. Hong Kong stocks were up all day and finished close to their highs at 1.07% but stocks in Tokyo retreated from recent highs, down 0.37% to 17,913. That’s still a solid 1.5% gain on the week for Tokyo while Shanghai was up 4%.
– On rates markets, the stronger stocks sapped the power of the bond bulls. US 10s sold off again to close at 2.05% up 6 points on the day and around 18 on the week. German 10s closed at 0.31% and UK 10-year Gilts closed at 1.68%.
– On currency markets, the US dollar was mixed with the euro easing back from 1.1440 to 1.1480. The Aussie came under pressure as well but sits around 0.7760/70 in early trade this morning. GBP is at 1.5396 while USDJPY sits at 118.80.
– On commodity markets, there are more signs of a supply response to the recent price crash. The rig count in the US showed that number of US rigs drilling for oil fell to the lowest levels since August 2011. This helped lift Nymex crude up 2.81% to $52.65 a barrel. Copper was at $2.60 a pound and gold climbed a little to $1,227. On the bulks, it is universal good news. March iron ore rallied $1.02 to $64.17 a tonne while March Newcastle coal was up 30 cents to $69.15. In the coal market however, 2015 and 2016 contracts rose, on average, a little under $1 a contract.
On the data front today there is no bigger release than the Japanese GDP with the market looking for a decent 0.9% print. Here at home we have new motor vehicles and of course, the Eurogroup meeting tonight. It’s a holiday in the US for President’s Day.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
So is the stock market going to extend the current impulse rally to push valuations significantly higher over coming weeks? Or are we in for something more like last year’s market action which saw relatively volatile price action inside a large, and gradually rising trading range?
Westpac looks like an interesting chart for those looking for some insight into this question. Stalling around current resistance, would see it maintain its trading range characteristic. On the other hand a clear break above this resistance, even if it doesn’t happen immediately, would be a positive development
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC