– The intellectual tug-of-war continues. Will the Fed really be as hawkish as many had been expecting when we hear from them early Thursday morning? Or will the continued run of weak data persuade them that a little more “patience” might just be in order. Indeed, industrial production for February printed 0.1% rather than the 0.2% the market expected. Capacity utilisation dropped to to 78.9% from 79.5% and the National Association of Home Builders (NAHB) index eased from 55 to 53 in March. The market had been expecting 56. The New York State, ‘Empire’, manufacturing index printed 6.9 for February down from 7.78 and well below the 8 the market had guesstimated at. This continues the run of weaker than expected data which had taken the Citibank surprise index to three-year lows for the US.
– Of course, stocks loved the weaker than expected data because it suggests that the Fed might have to stay its hand, or at least be a little more dovish, than traders had factored in. The Dow, S&P and Nasdaq were all up more than 1% and Europe’s markets fairly soared on the news that the ECB will spend EUR9.5 billion in its first week of QE. The DAX is now above 12,000.
– The flip side of these moves of course was that US interest rates rallied a little (10s to 2.08%) and the US dollar reversed some of Friday’s spectacular gains. The euro is back up at 1.0572, the Aussie is at 0.7640 (nervous before the RBA Minutes today) and sterling has had a big rebound to 1.4823. USDJPY remains becalmed and USDCAD is back below 1.28.
– What will be occupying traders’ minds over the next 40 odd hours (before the FOMC announcement) is that after last night’s data it is becoming increasingly difficult to make the case that “patience” is no longer required before the first Fed hike. So what will they say? That’s the problem when you play language games, they end up becoming point forecasts. Especially when the language changes it can have the same impact as a change in policy itself. So Janet Yellen and her colleagues will be walking a fine line this week. Me? I expect “patient” to be dropped but another qualifier added. Semantics!
– Here’s the overnight global stock market scoreboard:
- Dow Jones up 1.29%, 228 points to 17,977
- Nasdaq up 1.29%, 55 points to 4,370
- S&P up 1.35% to 2,081
- London (FTSE 100) up 0.94% to 6,804
- Frankfurt (DAX) up 266 points, 2.24% to 12,167
- Paris (CAC) up 1.01% to 5,061
- Tokyo (Nikkei) down 0.04% to 19,246
- Shanghai (Composite) up an amazing 2.24%. That’s 75 points to a new multi-year high of 3,448
- Hong Kong (Hang Seng) up 0.53% to 23,949
- ASX Futures (SPI June) up 46 points to 5,841
– The ASX was under pressure yesterday but last night’s move will be a boon. Likewise, if the Fed is a little more dovish than expected, stocks will head higher once again. Another thing worth considering, as the market maps out a somewhat volatile sideways trading pattern, is the $25 billion in dividends which will be paid out in the next month. Will that money be put back to work in the market? If so, at worst it should support and at best, we’ll see a topside break of the channel you can see in this chart from my Go Markets afternoon trading report.
– Turning to Asia now and stocks in Shanghai ripped higher to a fresh six-year high after Chinese Premier Li promised fresh, and enduring, stimulus if the economy slows too much. 2.24% is a huge rally and there were multiple stocks showing gains of more than 10% on the day.
– On commodity markets, oil’s crash continues with Nymex crude falling another 2.32% to $43.80. Gold is at $1,153 and copper is around flat at $2.66 a pound. On the bulks, iron ore was a little higher for June delivery, rising 47 cents to $56.67 while Newcastle coal was dragged down with the general energy fall. June dipped 85 cents a tonne to $57.15
– On the data front today, the RBA Minutes at 11.30am are the big event locally. Traders, economists and pundits will be poring all over them to see whether the RBA is making a choice between the dollar and housing and whether rate cuts will be further delayed. Offshore, the BoJ will be making a policy statement and holding a press conference. Tonight we get EU CPI and Employment. In Germany, the ZEW survey is out, as is its EU counterpart. In the US, housing starts and building permits are out.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The big bank charts look as though they may be setting up for a downward correction in the not too distant future. With a strong rally on Wall Street last night, today is unlikely to be the day. However recent price action has put them on my watch list.
Most of the traditional chart patterns are about situations where the behaviour of a market changes from a clear directional trend to some sort of range bound behaviour. Depending on the type of pattern, this allows traders to apply a set of rules to identify when price has broken out of the pattern to indicate the direction of a new trend developing.
Eyeballing the ANZ chart, it’s not hard to identify a clear uptrend which has now morphed into lower momentum range trading type behaviour.
It looks to me as though ANZ is a candidate to complete one of two different types of reversal pattern. The first could be a head and shoulder. This would happen if ANZ makes a peak not far above Friday’s high. The second would be a rising wedge. This will come into play if price pushes up a little higher than the head and then backs off.
In either case, the break of the neck line support would set up for a potential downward correction. However a strong move well above the “head” would negate my pattern theories and suggest a new leg of the uptrend is underway.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC