Good morning. Are you ready for Fed?
– Stocks were mostly lower across Europe and the US overnight, although the FTSE in London and the Nasdaq managed to buck the trend. What’s worrying traders is tomorrow morning’s Fed announcement and the chance of a change in language. Elsewhere, crude was under pressure once again and the US dollar fought back from early marginal weakness.
– Markets are hoping for clarity when the Fed announces its decision on interest rates tomorrow morning. The FOMC meeting, which began overnight and runs over two days, is widely expected to drop any reference to patience. This is viewed as a precursor to the start of the tightening cycle which most pundits expect to begin sometime between June and September. It’s a potential paradigm shift in markets and one which has the IMF scared. Overnight, IMF managing director Christine Lagarde, together with Ray Dalio from mega-hedge fund Bridgewater, warned of the impact of the Fed tightening. Lagarde’s concerns are for emerging markets and the potential rerun of the “taper tantrum” back in 2013. Dalio however, via the FT, is warning that the Fed risks causing a 1937-style stock market slump when it starts raising interest rates.
– Both of them have a point. The US dollar is already crushing the globe’s currencies. Which is great for some but bad for US businesses as Mike Bird from BI UK pointed out last night. Likewise, even though rates at 2 or 3% in a couple of years’ time is hardly a high level, the globe has become so drunk on free money and incremental interest rate differentials that the Fed’s move will be like an earthquake. We’ll know what they decide by this time tomorrow morning.
– But the big question is can they really signal the start to the tightening cycle when US data continues to disappoint? Last night, US February housing starts was the latest data point to miss – this one by a mile. Coming in down 17% on the month, this data has in many circles been dismissed as weather-related given that permits were a little higher than expected. But as the NAB points out this morning, “starts fell in the western states that have had some of the warmest Feb weather on record”. Interesting, but whichever way you cut it, the Citibank economic surprise index is still at three-year lows as the data continues to undershoot.
– In Europe, the data was mixed with the German ZEW survey “current conditions” reading up more than expected to 55.1 from 45.5. Balancing this out was the dip in expectations which fell to 54.8 from 53.0.
Here’s the overnight scoreboard:
- Dow Jones down 0.71%, 128 points to 17,849
- Nasdaq up 0.12% to 4,375
- S&P down 0.33% to 2,074
- London (FTSE 100) up 0.49% to 6,837
- Frankfurt (DAX) down 1.54% 186 points to 11,980
- Paris (CAC) down 0.91% to 22,703
- Tokyo (Nikkei) up 0.99% to 19,437
- Shanghai (Composite) Boom again, up another 1.58% to 3,503
- Hong Kong (Hang Seng) down 0.2% to 23,901
- ASX Futures (SPI June) up 4 points to 5,835
- AUDUSD: 0.7616
- EURUSD: 1.0589
- USDJPY: 121.35
- GBPUSD: 1.4739
- USDCAD: 1.2789
- Crude: $42.70
- Gold: $1,148
– In Asia yesterday, the positive lead from the US and the recent comments from Premier Li combined to drive prices substantially higher again. Having broken its recent range top, it’s clear traders are buying again with gusto. At the moment the overnight indication is Shanghai will have another good day. Likewise, the Nikkei was in a positive mood after the BoJ yesterday reinforced its QE program would continue. It noted it thought the economy was on the road to recovery but also downgraded its inflation forecast. If they are correct, that’s more QE for longer. Stocks liked that.
– On rates markets, US 10s dipped to a close of 2.05% but the European periphery sold off a little as traders fret about the renewed chances of a Grexit. Last night, Greek PM Tsipris said he had brought forward his trip to Moscow by a month to April. That’s a worry.
– On forex, while the US dollar, euro, Aussie and yen all had a bit of toing and froing overnight. Sterling came under pressure and is back down at its recent lows and very-long-term support. The reason for this according to Reuters is that people are worried about a hung Parliament in the UK after the upcoming general election. Equally worrying traders is the chance of the pull forward of the planned referendum on Britain’s inclusion in the euro.
– On commodity markets Nymex crude tanked again falling $1.25 a barrel to $42.62. That’s another almost 3% down. Amazing! Obviously oil is a case of the trend being your friend but there are also concerns about the impending Iran nuclear deal leading to more oil in the market. Gold is lower as well this morning which is inconsistent with the dip in stocks and the VIX’s 7.6% jump overnight. But hey, that’s markets. Copper dipped to $2.63 while iron ore for June delivery fell $1.19 a tonne to $55.48. Newcastle coal dropped $1.45 to $55.70.
– On the data front, the Westpac Leading Index for Australia is out today, as is Japanese trade data. Chinese house prices will attract some interest but the Bank of England’s MPC cut and Minutes will be the highlight mid-evening. But the big one is at 5am tomorrow morning with the release of the FOMC decision.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
In the absence of any really bad news for a stock, modest corrections and limited value opportunities are the new normal for the share market in this low interest rate environment.
After its recent correction, Mirvac is back to about 15 times F16 earnings. This puts it on my watch list as a potential buy.
From a chart point of view the rally from $1.78 to $2.19 during January and February looks like an Elliot wave 5 swing advance. What often follows, is a 3 part or “a,b,c” corrective decline. Price action over the last few weeks has this look.
At the moment Mirvac has bounced off its 50 day moving average (dark blue line) and the 50% retracement of the last rally.
From here I am watching 2 potential buy signals in Mirvac
- The first would be if Mirvac holds the current support AND moves up through the old resistance shown by the dashed blue line at $2.04. This “overlap” back through “a” would be a sign of potential strength and an indication that the “abc” correction is over
- The second would be a drift back to the deeper support around the 61.8% Fibonacci resistance around $1.93. There is also longer term trend line support out to the left of this zoomed in chart that intersects around this level and is shown by the light blue line.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC