Good morning. Here’s something to keep you busy while you count down to FOMC.
– The market is voting for the status quo from the FOMC tomorrow morning if last night’s price action is anything to go by. The commodity bloc currencies, which includes the Aussie, Kiwi and Loonie, rose in unison for the second day in a row and stocks on Wall Street pushed higher in overnight trade.
– Westpac New Zealand economist Imre Spritzer noted that WSJ Fedwatcher Hilsenrath opined the FOMC would not change its key guidance language that rates would remain low for a “considerable period of time”. While Eamonn Sheriden from ForexLive told Business Insider that “the PBOC is injecting 500 billion yuan of liquidity into China’s biggest banks in a sign that while reform is a top priority, economic growth will not be allowed to slip too far. The injection should have an equivalent impact to around a 0.5% cut in the RRR”.
– At the close, the Dow was up 101 points to 17,132 for a gain of 0.59%, the Nasdaq rose 0.75% after the previous day’s fall, finishing at 4,552 and the S&P 500 closed just short of 2,000 at 1,999 for a gain of 0.75% as well.
– On the data front, in the US, producer prices were flat in August and up 0.1% when the volatile food and energy components were excluded. With no threat to inflation in the near term, trades saw this as as signal that the Fed can be cautious and the FOMC tomorrow will reflect that in the decision and statements. The Redbook index unexpectedly fell 0.4% in September, taking the year-on-year growth to 3.6% from 4.9%.
– In Europe, the collapse of the German ZEW current situation survey from 44 to 25.4 shows exactly why the OECD called for the ECB to get moving with QE. While EU sentiment tanked to 14.2 from 23.7, hope in Germany was even weaker, with the sentiment index printing 6.9.
– So at the close, all the big European markets are lower. The FTSE fell 0.18% to 6,792, the DAX fell 0.28% to 9,633 and the CAC fell 4,409. In Milan and Madrid, stocks were 0.30% and 0.39% respectively. No doubt Europe will play catch-up this afternoon when markets open.
– Locally, the US rally saw ASX futures push sharply higher overnight with the September SPI 200 futures up 27 points to 5,468 and December up 26 points to 5,468.
– In Asia yesterday, markets were off with the Nikkei down 0.23% to 15,912. The Hang Seng dipped 0.91% before the typhoon closed the market and Shanghai tanked 1.8% when the foreign investment numbers showed inbound investment to China fell 1.8%. The market lost 1.8% to 2,297.
– Bond markets by contrast were fairly quiet. US 10s finished at 2.59%, Gilts closed at 2.53% and Bunds finished at 1.01%.
– On Currency markets, the Aussie is at 0.9088 at the moment after rallying with its commodity cousins. USDJPY still looks like it is topping at 107.11 and the euro is at 1.2957. Sterling had a volatile night, moving around on rumours of polls on the outcome of the Scottish Independence referendum but it sits at 1.6270 this morning.
– On Commodity markets, Iron Ore pulled back 54 cents on the September contract to $84.17 a tonne. September Newcastle Coal rose just 5 cents to $66.20 a tonne. Along with the commodity bloc rally (and general US dollar dip), Nymex Crude rose $1.79 a barrel to $94.71. Gold rose a smidge to $1,236 and Copper roared 7 cents to $3.16 a pound. On the Ags, Wheat fell 0.72%, Corn was flat and Soybeans dipped 3.66%.
On the data front, locally only the Westpac leading index is out in Australia before the BoE minutes and vote cut are announced tonight. EU CPI is going to be a big release, as will the US CPI. The key release, however, is that FOMC decision tomorrow morning.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
ASX 200 Index
Last night’s rally in the US market and re think on the Fed comes at an interesting time for the Australian market as a whole.
As the chart below shows, the ASX 200 index has arrived at the top end of what could be a major support zone. This consists of 2 trend lines, one dating back to 2012 and a more recent one across the major lows this year. The 200 day moving average lurks just below this at 5416.
In these days of shallow corrections and low volatility, the scenario in which the support holds looks the most likely scenario (even if there is a bit of a false break below to get everyone exited). However, it could pay to have an open mind on this. The market does have considerable downward momentum. A clear break under this level could be read as a sign that a significant correction is under way
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC