Happy Monday! Here’s the start you were looking for.
– Another night of weak stock trading in Europe as the moribund economy and an intransigent ECB combined with Ukrainian tensions to darken both the economic outlook and mood. In the US, things were not so sour but stocks didn’t exactly surge into the weekend.
– At the close, US stocks were mixed, with the Dow down 0.30% to 16,663, the Nasdaq up 0.27% to 4,465 and the S&P 500 in a 22-point range with a high of 1,964 and a low of 19,42 before climbing into the close to end unchanged at 1,955.
– In Europe, stocks had an ugly day and even the most novice of chartists would be worried about the DAX which had a 1.43% fall after a solid open. Key here is the assertion by Ukrainian forces that they struck a Russia APC convoy which snuck onto its their territory. The Russian said it was fanciful, but the damage was done nonetheless. Elsewhere in Europe, the CAC fell 0.90% and the FTSE managed to rally 0.06%.
– Worth noting in what is an ongoing debate about how the world – or at least markets – might look once the Fed moves from taper to tightening, St Louis Fed Governor told Bloomberg (HT Ivan at FXStreet) that markets are mispricing the Fed intentions. “The market is trading too dovishly compared to the committee, I think that’s probably a mistake,” he said. Danger Will Robinson!
– Locally, the ASX is likely to open higher with SPI200 September futures up 10 points to 5514. It’s a huge week of reporting for Australian companies so whatever the index does there may be a large number of company specific moves.
– On Bond markets, it is remarkable that the 10-year bond is at 2.35% which is a fresh low for 2014 and also looks to be breaking into a lower bound once again. It could be on the way toward 2%. Almost every pundit and forecaster, though, thinks rates will be higher by year’s end which, in a pure market positioning sense, helps load the gun for a market rally (rates lower). Add in a dash of worry about stock market stability and you have a perfect set of conditions for the rally we are currently seeing.
– In Europe, German 10s are down and through 1% closing at 0.96% on Friday, Italian and Spanish bonds also rallied down 4 and 12 points respectively and in the UK, 10-year Gilts fell 11 points to 2.33%. At low rates, capital price moves are huge, so the German move represents a 5.88% capital appreciation in the price of the bond.
– On Currency markets, at least we now know why the US dollar won’t go up – foreigners have been selling US assets, dumping a record $153.5 billion in June according to TIC data released on Friday. Euro continues to pause after the big fall recently and is at 1.3391 this morning, trying to decide if the pause is for a base or before more weakness. Sterling is up this morning after BoE Mark Carney spoke to the Sunday Times and appeared a bit more hawkish on rates than recently – GBPUSD is at 1.6719. USDJPY is at 102.36 and the Aussie is at 0.9318.
– On Commodity markets, both Iron Ore and Newcastle Coal for September delivery were higher in trade Friday. Iron Ore rose 75 cents to $93.63 a tonne while Coal was up 40 cents a tonne to $70.65. Nymex Crude was up $1.77 to $97.24 while Gold dropped sharply at one stage Friday before recovering to $1,304 – the price action will have shaken up a few longs. Silver dipped almost 2% to $19.53 an ounce while Copper is at $3.10 a pound. On the Ags, Corn and Wheat rallied 1.04% and 2.61% respectively while Soybeans also climbed up 0.39%.
On the data front, it is both a quiet but very important week for Australian markets and you can find our new and improved Aussie Market Diary with all the details. Today, however, we see UK and Chinese house price indices and new motor vehicles in Australia. Tonight is the EU trade balance and US NAHB housing market index.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
With its results due tomorrow, this was always going to be a big week for BHP. However, Friday’s announcement that this week’s board meeting will also consider splitting off its non-core assets has added considerably to the stakes.
Here are some chart levels for readers looking to assess the landscape before any announcement.
- The $40 area looks like significant resistance. Around here a trend line across the highs of February 2013 and 2014 intersects with a 50% retracement of the 2011/12 decline.
- If the board disappoints, the low $37 area looks like support. Here the 200 day moving average intersects with the lows of 2 weeks ago.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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