Well, would you look at that – it’s Friday! Here’s what you need to know before getting your weekend freak on.
– Bond markets don’t get a lot of coverage in this note because a few basis points here and there are hardly material day to day. But the big moves, like the one we are seeing in the US at the moment, are vitally important to all markets, stocks, Forex and beyond.
– Last night the euro was crashing after weak data and the US dollar was strong across the board. But when 10-year Treasuries slipped below 2.5%, all bets were off and the dollar came under heavy selling pressure so much so that euro moved a full big figure higher to the 1.3730 region. Bond God Jeff Gundlach reckons this could be one of the biggest short scrambles of all time – which means rates will fall further and undermine the US dollar even more.
– Bond rallies are often good for stocks, but not last night, with the Dow down 167 points or 1% to 16,447. The Nasdaq fell 0.77% to 4,069 and the S&P gave back 18 points or 0.93% to close at 1,871. The data was pretty solid in the US with the NY Manufacturing Index surging to 19 from 5 and the Philly Fed Index up to 15.4 from 14. industrial production was a little weaker. Key to the move could simply be an asset allocation shift at some fund managers as they move to safer havens, not trusting the rally in stocks or the rotation that is occurring.
– In Europe, stocks were also lower after EU GDP came in at just 0.2% in Q1 2014, half the rate expected. However, it was US weakness around the middle of the European day which dragged stocks lower. At the close, the FTSE fell 0.55% to 6,841, the DAX fell 1.01% to 9,656 and the CAC was 1.25% lower at 4,445.
– Importantly though, Italian and Spanish stocks were poleaxed as investors adjusted their risk profile overnight, which fits with my theory we are seeing an asset allocation shift. The genesis is in Italian 10-year bonds which were up 0.19% after a stellar rally in 2014 from 4% to 3% before last night’s sell-off. This meant that stocks in Madrid were sold heavily and the FTSE MIB closed 3.61% lower while in Madrid, stocks dropped 2.35%.
– Of course, the impact on Australian stocks from all of the above is that on Futures overnight the SPI 200 June contract was down 30 points to 5,494.
– In Asia yesterday, shares in Shanghai fell 1.12% after weaker than expected growth this week, worrying investors that earnings are going to be hit. Expect the US and European weakness to weigh again today, accelerating the weakness in Shanghai and the Nikkei which was down 0.75% yesterday. Hong Kong might be a big mover downwards today after it rallied 0.66% yesterday. On the data front in China, we get FDI data and in Japan, industrial production data will be interesting. The big number for Asian markets is likely to be Hong Kong GDP.
– Turning to a huge night in Currency markets where the euro and pound found support exactly where they were supposed to. The rally will have traders wondering if the US dollar still can’t take a trick. The bulls will have control for the day with euro sitting at 1.3711 while the pound is back at 1.6788. USDJPY sits at 101.55 while the Aussie is mid-range at 0.9355.
– On Commodities, Nymex Crude fell 0.79% to $101.56 Bbl, Gold dropped $12.20 oz back below $1,300 to sit at $1,296.60 this morning. Copper is at $3.16 lb and Silver dropped 1.46% to $19.47 oz. On the Ags, the selling continues with Corn down 2.27%, Wheat off 1.77% and Soybeans down 1.29%.
On the data front today, the Asian data mentioned above dominates but the EU trade balance will be interesting, particularly for Euro traders. In the US tonight, we get building permits, housing starts and the Uni of Michigan consumer sentiment survey.
Here is CMC Markets Stock to Watch for Today by Chief Market Analyst Ric Spooner
NAB’s profit result last week was broadly in line with market expectations but was perhaps the weakest of the big 4 with Australian revenue falling 1%.
The chart now looks to be setting up for a test of sentiment towards this stock. After rallying back above its 200 day moving average when the result was announced last week, it’s now back under it after trading ex the 99c dividend. In the past 2 sessions it has baulked at the recent low of $33.35. A break below this level would be a sign of weakness, with sellers becoming more active now that they are entitled to the dividend.
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