Good morning. Let’s get this Wednesday started.
– A solid night on global stock markets starting with the Nikkei and hopes for more stimulus after Prime Minister Abe called an early election. Europe did well after the ZEW surprised with a bounce to 11.5 and US stocks we buoyed by price action elsewhere and comments from noted money manager Jeremy Grantham that “The Stock Market Will Run Deep Into A Bubble Before It Crashes“.
– In the US, stocks finished up 0.25% on the Dow at 17,690, the Nasdaq rose 0.66% and the S&P 500 made another all-time high at 2,052 up 11.
– There is no understating the surprise from the sentiment index which beat expectations by a full 11 points with the 11.5 print. The current conditions of 3.3 is much more subdued but that was solid compared to the 1.8 which was expected.
– So at the close of play the DAX was up 151 points or 1.62% to 9,457. The CAC rose 0.85% to 4,262 and the FTSE 100 was up 0.56% to 6,709. In Spain, the IBEX 35 rose 1.20% to 19,353 while in Milan the FTSE MIB was up 0.71%.
– Locally, after another down day on the physical yesterday, ASX futures traders took the December SPI 200 up 16 points overnight to 5,429. Our market is marching to the beat of its own – bank and miner induced – drum, so the battle will be on between offshore positivity with a huge crash in iron ore.
– In Asia it was all about Japan for the second day in a row as Prime Minister Abe called a speculative early election and delayed the sales tax increase for 18 months as he seeks to hold onto power. Parliament is to be dissolved at the end of this week which is less than halfway through Abe’s four-year term. The move highlights how bad things might be getting in Japan and the fact that Abe wants to get ahead of the crunch.
– On Chinese markets it appears to have been a classic buy-the-rumour, sell-the-fact trade so far with both the Hang Seng and Shanghai exchanges lower. In Hong Kong, the index was down 1.13% while in Shanghai, the composite index dipped 0.73%. Equally however, the sharp drop in house prices pointed to further slowing in the mainland economy.
– On Rates markets, US 10s dipped a point to 2.33%, German Bunds didn’t react to the ZEW survey holding at 0.76% while Gilts finished at 2.12% after the CPI came in as expected (1.3% yoy and 0.1% mom) – which after the Carney and Haldane warnings, was a good result.
– Over in Currency land, the ZEW helped euro (1.2533) rally but sterling (1.5634) fell out of bed again and is closing in on important support. USDJPY is at 116.89 after reversing the previous day’s reversal. The Aussie is at 0.8727 confounding the RBA’s obvious disquiet over both its resistance to the falling terms of trade and growing concerns about the Australian economy.
– Ouch! On Commodity markets the baby and the bath water were both jettisoned by iron ore traders as the signs that China is slowing and the majors are unrelenting in their supply increase knocked the market for six. The December contract fell $3.02 a tonne to take the price to $70 – which was the target I highlighted months back. I’ll have a good look later this morning on what’s next. Newcastle coal rose 25 cents for December delivery to $64.95.
– Elsewhere, Nymex crude dipped 1.71% to $74.35, copper dipped back to $3.00 a pound and gold rose to $1196 in a sign that someone somewhere is feeling a bit of market tension. On the Ags, corn rose 1.92%, soybeans crashed 6% and wheat was largely unchanged.
– On the data front today, the MNI Business sentiment index is out today and the BoJ interest rate decision and conference are out. In Australia, the WBC leading index is out while tonight the BoE MPC cut is to be released. Tonight in the US it’s building permits, housing starts and then the FOMC minutes.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Japan will be in the mix as a key driver of stock market sentiment. Today will see market reaction to news of an election and likely fiscal stimulus package plus a statement from the Bank of Japan.
All this comes as the Nikkei Index approaches a potential resistance level. This may prove an interesting benchmark for ongoing market sentiment on Abenomics. Stimulus initiatives are helpful but need to be seen in the context of forecasts for an ongoing decline in the size of Japan’s workforce. Unless this changes, Japan will need productivity gains to outweigh the impact of fewer works to achieve overall GDP growth in the long run.
The most obvious chart resistance for the index is the old trend line support. Fibonacci followers will also be interested in the fact that the market has also hit a level that adds 27% on top of the last major swing from “X” up to “A”.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC