Time to catch-up.
– The old fox Terry McCrann (term of endearment) has written an article which, while nuanced about whether or not the RBA will actually ease next week, certainly contains some thoughts on how the Statement on Monetary Policy will be downgraded in terms of both growth and the inflation outlook. We’ll know next week but the content and detail of his piece suggests heavy backgrounding from someone very close to the RBA.
– The argument after yesterday’s CPI and the fall in headline and spike in underlying is somewhat arcane and there was something in it for both sides. But, with central banks cutting all over the world to weaken their currencies and with the globe’s previous most hawkish central bank – the RBNZ – this morning cutting its reference for the need to take rates higher, the RBA won’t sit idly by and do nothing. Especially with the Fed appearing slightly more dovish (see below). Over my career, McCrann has not always been right but he has an excellent track record, so while I’m not convinced they’ll cut next Tuesday, it seems the SoMP on Friday will make very interesting reading.
– On the Fed, the most commentary seems to suggest that it hasn’t changed its outlook and it certainly remains ‘patient’, but Myles Udland from BI US has picked up that Deutsche Bank US economist Joe LaVorgna reckons there are two words which change the context of the statement to be more dovish. It’s a nuance for sure but I agree with him 100%. When has a central ever stood still when everything else changed?
– It’s a mad world where central banks are causing volatility but it just might be a necessary part of the transition from the post-GFC world to something more sustainable, as Deutsche Bank hypothesised recently.
– So at the close, the scoreboard in the US reads:
- Dow Jones down 1.12%, 195 points to 17,192
- Nasdaq down 0.93%, 43 points to 4,638
- S&P down 1.36%, 28 points to 2,002 (I think it’s going to bust lower soon – watch 1,988/90)
– European markets were mixed with continuing concerns about Greece and Greek banks under pressure. News that Greece’s new government is already hiking the minimum wage and reversing privatisation is also worth watching.
– German data showed consumer confidence at 9.3 a little stronger than the 9.1 expected while import prices fell more in December (-1.7% v -1.5% expected) taking the year-on-year fall to 3.7%. The euro’s weakness should impact this in time – whether it does or does not will tell us everything we need to know about aggregate demand in Germany.
At the close:
- London(FTSE 100) up 0.21%, 14 points to 6,826
- Frankfurt (DAX) up 0.78%, 82 points to 10,711
- Paris (CAC) down 0.29%, 13 points to 4,611
- Milan (FTSEMIB) down 0.81%, 168 points to 20,478
- Madrid (IBEX) down 1.34%, 142 points to 10,457
– Locally, futures markets are getting hammered as the US dips into the close. March SPI 200 futures were down 44 points with 15 minutes to go but closed down 65 points at 5,447. That’s about a 1.0% loss as an indication of where prices might go today.
– In Asia yesterday, Singapore joined the currency war with the MAS changing the slope of the NEER band in an attempt to weaken the Singapore dollar. It worked, with USDSGD rallying up to 1.3526 this morning, the highest level since August 2010. Elsewhere in the region, the Nikkei rallied all day before closing up 0.16% but overnight futures indicate a weaker day today, with March Nikkei down 60 points. Likewise, Shanghai and Hong Kong stocks looks set to open lower with indications that futures are down 50 and 153 points respectively. Without any major data releases today for the region, the US lead will dominate but Shanghai looks like it is having a pullback all of its own anyway.
– RATES, WOW! In many ways this is the biggest story of the day with a massive rally in US 10-year Treasuries which fell 11 points to 1.71%. That’s a 6% capital appreciation for bond holders. Indeed, German bond holders made 7% with the move from 0.35% to 0.32% in 10-year bunds. It’s mind-boggling stuff and goes to show there’s nothing fixed about fixed interest.
– On currency markets, the Aussie rallied to 0.8026 last night but the combination of McCrann and the RBNZ has knocked it back to 0.7929 this morning, wiping out all the CPI-induced gains. Interestingly, the RBNZ dovishness also knocked the euro lower and it’s at 1.1307, while GBP is back at 1.5144. USDJPY at 117.61, which is perhaps an indication of rising investor risk aversion.
– On commodity markets, there was a massive build in US oil inventories which smashed expectations again, with the EIA reporting an increase of 8.874 million barrels following on from last week’s 10.071 million barrels and more than double expectations. Nymex crude fell 4.17% as a result, to $44.30. Copper is at $2.464 a pound, largely unchanged but gold has dipped $7 to $1,284 an ounce. On the bulks, iron ore for March dipped 18 cents to $61.92 a tonne with Newcastle coal for the same delivery 45 cents higher at $60.35.
Datawise, here in Australia we see the release of Q4 import and export prices. Tonight we get European consumer and business confidence along with CPI in Germany. In the US, it’s jobless claims and pending home sales.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Aurizon operates 2300km of rail track, with its principle businesses being hauling coal and iron ore. It released its quarterly volume report yesterday which revealed a 2% drop in coal transported and a 22% decline in iron ore. However, this was well anticipated by the market and was due to a variety of factors ranging from mine closures to temporary operational issues. So the stock had a good day, closing up 2% at $4.88
The chart has arrived at an interesting place, however. It’s managed to push up through its 200-day moving average (green line) in recent days. But if it falls away from here, it will complete an ab=cd pattern as outlined on the chart below.
This would set up for a decent downward correction of the whole rally from 4.36 and make the push up through the 200 average look like a false break. At yesterday’s close, it’s on a price earnings multiple of around 17.5 times forecast earnings for F15, so a bit of a pullback doesn’t look out of the question.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC