A big night, a big morning.
– The FOMC and Janet Yellen were the big story overnight but the Scottish referendum is going to be the big story in the next 24 hours. Looking backwards first, the FOMC has made a few things clear. Firstly, that the taper will end next month, secondly that rates are likely to increase next year and thirdly that the plans to exit QE are well-advanced.
– The price action on currency markets was a great indicator of the market’s ebb and flow of feelings about what the Fed was actually saying, with the wash-up being that the US dollar is stronger and the focus is now on higher rates in the US. That means the pressure is likely to remain on the Aussie dollar, which broke below the 6-month bottom set earlier this week, hitting a low of 0.8948 before rallying a little to 0.8963.
– Stocks had an erratic day too, with the market hitting new all-time highs before pulling back into the close. Like Currency markets, traders on the NYSE seem to recognise that while Janet Yellen remains a ‘dove’, i.e. in no hurry to hike interest rates, the era of zero rates and QE is ending.
– Two things Yellen highlighted which should help stocks – even though the game is changing – is that there is plenty of room in the labour market and inflation remains quiet. Indeed, the CPI for August which was released last night showed no rise in prices and the year-on-year rate of price growth dipped from 1.9% to 1.7%. So we end up with a situation where the US dollar is strong and stocks aren’t harmed too much by the FOMC rhetoric.
– So at the close the Dow was up 25 points to 17,157 for a gain of 0.15%, the Nasdaq rose 0.20% to 4,562 and the S&P pulled back from a high at 2,011 to close up 3 points to 2,002.
– In Europe, the release of EU CPI of 0.1% took the year-on-year rate to a paltry 0.4%, showing how much work the ECB needs to do to avoid turning into Japan. This recognition seemed to help stocks with the DAX up 0.3% to 9,662, the CAC up 0.5% to 4,431%, while stocks in the periphery of Milan and Madrid rose 1.56% and 1% respectively. In the UK, the selling pre-referendum continued with the FTSE down 0.17%.
– Locally, the impact has been that the SPI 200 futures for September and December both rose 3 points to 5401 bid. The US rally is supportive of the local market but the the SPI 200 looks like it is sitting on a huge technical level in the 200-day moving average. But as Ric Spooner pointed out in yesterday’s Stock To Watch, the ASX broke a big level in the physical yesterday. So it will be an interesting day’s trade today.
– Asian trade yesterday was interesting in itself with Shanghai down early but then rallying up 0.5% to 2,308. Hong Kong played catch-up to the previous day’s US rally and its typhoon-induced closure by rising 0.99% to 24,376. In Tokyo, stocks dipped a little, falling 0.14% to 15,889.
– US bond markets reacted badly initially, but at the close, the 10s were only up 3 points to 2.62%. Germany sold 2-year bonds at -0.07% but their 10 years closed at 1.01% while in the UK, 10-year Gilts finished at 2.52%.
– The USD was dominant on Currency markets as noted above, with the euro down 0.7% to 1.2867 from a high of 1.2981 last night. That is a big selloff! Sterling is down at 1.6280 and USDJPY sits at 108.29.
– On Commodity markets, Newcastle Coal lost 15 cents for September delivery to $66.05 while September Iron Ore was largely unchanged at $84.10 a tonne. With the strength of the US dollar overnight, Gold fell to $1,222 an ounce, Nymex Crude dipped to $93.98 a barrel and Copper finished at $3.13 a pound.
On the data front, it is a largely barren 24 hours with the exception of the Scottish referendum, which has potentially huge implications if the referendum succeeds.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Banks and high yielding stocks are leading the move lower at the moment. But as prices retreat it might pay to have that yield consideration in the back of your mind.
At yesterday’s closing price, NAB’s forecast dividend for 2015 will provide shareholders with a yield of about 6.3%. Include the benefits of franking and that becomes about 9%. Even if interest rates go up a bit and even if bank profits get squeezed a little, this is starting to look pretty reasonable.
So no doubt some buyers might be starting to look for support levels.
In NAB’S case shareholders also have tonight’s Scottish secession vote to worry about. However, the first cab off the rank for a possible support level is the base of the triangle formation on the weekly chart below. This intersects at around $32.50. Like the other banks, NAB has broken below its 40 week moving average. But this average is tracking broadly sideways in a way that is consistent with a big picture, sideways range trading situation like a triangle.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC