Good morning. Let’s get started.
– Disappointing earnings and a big drop in durable goods orders in December (-3.5% v +0.5% expected) have knocked the wind from the sails of US stock traders, with prices down amid worries about the impact of the stronger dollar on companies in the quarters ahead. This combination outweighed what was a very solid print in consumer confidence, which printed 102.9 versus 95.1 expected. But the reality is that the market will take notice when the confidence converts to economic growth.
– In Europe, it was similar with disappointing earnings and some lingering concerns about exactly what is going to happen in Greece. Stocks fell another 3.7% in Athens, bond yields rose and the national bank of Greece and bank of Piraeus fell around 12% apiece.
– Macro traders didn’t miss the import of the earnings results in the US on the economy, or perhaps also the Fed, with the US dollar losing ground against the euro and pound which rose 1.17% to 1.1368 and 0.82% to 1.5200 respectively. Against the yen, the dollar dipped to 117.85 while the Aussie lagged and is at 0.7928.
– On the US dollar and Fed front, it is worth noting that Morgan Stanley have moved their forecast for Fed tightening to Q1 2016 – very different to Fed signals and market expectations – on the back of the fall in inflation.
– In the UK, there was the release of Q4 GDP which while it only missed by 0.1% with a print of 0.5% for the quarter, was a bit disappointing. But sterling rose regardless.
– So with 25 minutes of trade before the close, the scoreboard in the US reads:
- Dow Jones down 1.51%, 267 points to 17,415
- Nasdaq down 1.57%, 75 points to 4,697
- S&P down 1.17%, 24 points to 2,033
– European markets besides Athens were higher.
At the close:
- London(FTSE 100) down 0.59%, 40 points to 6,812
- Frankfurt (DAX) down 1.57%, 169 points to 10,629
- Paris (CAC) down 1.09%, 51 points to 4,624
- Milan (FTSEMIB) down 0.53%, 111 to 20,646
- Madrid (IBEX) down 0.91%, 97 points to 10,599
– Locally the ASX did really well yesterday, all things considered, rising 0.8% to 5,547. Overnight however, a fair chunk of yesterday’s 45 point gain was given back with the March SPI 200 futures down 23 points to 5,467. For local stock afficianados, here’s 10 things that might surprise Aussie stock traders in 2015 from Morgan Stanley.
– In Asia yesterday, trade was mixed with the Nikkei 1.71% higher to 17,768 but overnight futures are off 80 points with the weakness in Europe and the US. In Shanghai, the disappointing industrial profits, which dipped 8% in December, weighed a little with the market down 0.89% to 3,353. In Hong Kong, the market dipped 0.41% to 24,807.
– On bond markets in the US, some early strength in the 10s which drove rates down to 1.75% gave way to selling and rates are sitting at 1.82%, down 1 point this morning. UK 10s finished at 1.49% and German Bunds closed at 0.35%.
– On commodity markets, copper was the big mover, down more than 3%. Crude was up 1.66% to $45.90 and gold bounced nicely on the stock vol, back up $14 or 1.13% to $1,293. On the bulks, March iron ore rose 37 cents to $62.10 a tonne while Newcastle coal for the same delivery was up 55 cents at $59.90. Yes, you read that right.
– On the data front, it is a huge day today in Australia with the release of the Q4 CPI. The market is expecting a headline rise of just 0.3% which will drop the year on year rate to 1.8%, below the bottom of the RBA’s 2-3% target band. What’s so important about this data is that it will drive expectations about whether or not the RBA will ease policy next month.
Offshore tonight we get Gfk consumer confidence in Germany and then tomorrow morning the other big event with the release of the FOMC decision and statement. No one expects them to move rates but the market will be reading every single word and nuance to gauge any change in Fed stance flowing from the US dollar or economic data in order to see if the Fed is still on track to tighten mid-year.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The rain keeps falling, as does the Aussie dollar. Both these things are good news for fertiliser group Incitec Pivot – its share price keeps rising.
Incitec’s 34% rally from $2.66 has so far played out in textbook fashion for chart followers. The rally is looking very much like a 5-swing advance with a neat abc correction bouncing off the 38.2% Fibonacci retracement level completing the 4th swing.
This relatively shallow correction was a sign of potential strength. The sharp rally over the past couple of days, including a minor price gap at the open yesterday, also looks positive. A weak inflation number and downside for the Aussie dollar might bring more good news today.
However, all good things must come to an end and the first major hurdle looms, according to the chart textbook. At around $3.66, the 5th and potentially last leg of this advance will be the same size as the first. This quite common behaviour, meaning signs of a trend peak close to this level, could signal a downward correction to follow.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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