Here's your 20-second guide to what Aussie traders will be talking about this morning

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Good morning. Here’s what you need to know.

– It was a huge night for the US dollar Friday as it swept all before it. The euro closed at its weakest level for 12 years and sits at 1.0470 in very early Asian trade this morning. The US dollar index closed the week above 100 for the first time since 2003. The Aussie is at 0.7619 and sterling is down at 1.4738. That’s a brutal reversal of the price action we saw Thursday night after retail sales missed. It clearly demonstrates that traders firmly believe the FOMC is going to be very hawkish when it releases its statement and when Janet Yellen faces the press on Thursday morning our time.

– What’s interesting about the US dollar move is that it was not supported by the data. The Reuters/Michigan consumer confidence index for March fell from 95.4 last month to 91.2. That’s a big fall but also a big miss from expectations of a 95.5 print. More tellingly though was the huge miss in the US PPI data for February, which fell 0.5% against expectations of a 0.3% rise. That’s knocked the year on year rate to -0.6%. Ex-food and energy, the year on year rate has dipped to 1% from 1.6% last month. Two things are important here. First, the Fed is looking to get inflation higher and second, as the NAB pointed out this morning, Friday’s data “took Citi’s US Economic Surprise Index to -60, a fresh three-year low”. That means the data flow relative to expectations is the weakest it has been in three years. Will it impact the Fed?

– It has certainly impacted US stocks which closed the week marginally lower. The worst possible world for US stocks has to be Fed tightening because of a strong employment market when the rest of the economic indicators continue to print weaker. The Fed is still months away from tightening but how, or indeed if, they change their language around patience is going to be the key to the outlook this week for global markets. In Europe, the afterglow of QE is still driving the DAX to new heights while Asian stocks are also in a particularly ebullient mood.

– Here’s the overnight global stock market scoreboard:

  • Dow Jones down 0.82%, 146 points to 17,749
  • Nasdaq down 0.44% to 4,872
  • S&P down 13 points for a 0.63% fall to 2,053
  • London (FTSE 100) down 0.3% to 6,741
  • Frankfurt (DAX) up 100 points, 0.87%, to 11,902
  • Paris (CAC) up 0.45% to 5,010
  • Tokyo (Nikkei), another huge 15-year high with a gain of 1.38% to 19,254
  • Shanghai (Composite) up 0.71% to 3,373
  • Hong Kong (Hang Seng) up 0.11% to 23,823
  • ASX Futures (SPI June) down 10 points to 5,798

– The rally in the Nikkei on Friday is indicative that it is not economic activity that is driving stocks at the moment with Reuters reporting that “industrial robot maker Fanuc Corp jumped 13 percent on a report that it will consider raising its dividend and buying back stock”. A dividend increase is usually viewed as a good thing, but in this context, along with stock buybacks – like QE – this seems more symptomatic of a lack of opportunities in the economy, not a sign of economic strength. But hey, that’s the world we live in. In China, the local government debt swap deal (reducing the exposure of local government to maturing debt in 2015) is reported to have improved investor confidence, driving the Shanghai exchange higher. Strong lending growth also helped traders stop worrying about the outlook for the economy.

– Domestically the market is likely to trade at the whim of the US this week with little by way of material domestic news. Having said that though, the Minutes to the RBA’s last board meeting will be interesting as traders and pundits try to read the tea leaves for indications of the path of interest rates in the next few months relative to market pricing, which is looking for a couple of cuts.

– On rates markets, the weaker than expected US data on Friday saw the 10s close at 2.12%. German 10s finished at 0.22% and UK Gilts finished at 1.74%.

– On commodity markets, Nymex crude tanked again, down 4.36% to just $5 a barrel. Gold is at $1,158 and copper closed at $2.6745. On the bulks, June iron ore futures dipped 83 cents a tonne to $56.20 while Newcastle coal for the same delivery fell 35 cents to $58 a tonne.

– On the data front today, we get new motor vehicles in Australia, FDI in China and the New York manufacturing PMI and US industrial production tonight.

And now from CMC Markets’ Ric Spooner is today’s Stock of the Day

Telstra

The immediate focus of Friday’s news of TPG’s bid for iiNet was on those two stocks both of which had good rallies. However, it’s a move that also looks like having significant implications for Telstra. TPG has emerged as the clear number two in the broadband market and a significant competitor for Telstra.

It will be interesting to see how Telstra investors react to this move in coming weeks and whether there are any signs of switching out of Telstra into TPG. If there is any weakness in Telstra, it’s hard to imagine that bargain based yield hunters will sit on the sidelines for too long.

Looking at the chart, key medium term levels look to be:

  • Resistance: Around $6.42. This comes from the Feb 10 low and 20-day moving average
  • Support: Around $5.98/$6.03. Represented by the 50% and 61.8% Fibonacci retracements of the last major rallies. Fibonacci levels below that are around $5.80/$5.84

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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