Er, Happy Friday?
– A big macro move overnight with the Aussie, Canadian and Kiwi dollars down, precious metals poleaxed, copper dropping and crude falling below $44 a barrel before recovering. The Aussie, Kiwi and silver are the standout losers, with the Aussie down 3 cents in the past 36 hours at its lowest level since July 2009. The question is whether these moves – while the euro stabilised – are just traders being traders and finding weakness to thump or whether something bigger is afoot.
– My sense is that what we saw overnight is a direct result of what the SNB did recently by blowing up volatility, and thus bank VAR models, which has caused positions to be scaled back in size. The impact of this, and the increased volatility, is that positions are held with less conviction which again feeds volatility in a negative feedback loop. So markets are up one day and down another and trends will be driven to extremes before they reverse.
– But also worth noting when it’s the US dollar sweeping all before it is that even though it’s at multi-year highs, if the kind of data we saw overnight with the huge dip in jobless claims (down 43,000 to 264,000) then the Fed will have no choice but to hike and the US dollar will continue to sweep all before it. Of course, the fall in pending home sales of 3.7% was disappointing but the US economic recovery is about jobs and spending.
– So at the close, the scoreboard in the US reads solidly in the black
- Dow Jones up 1.27%, 219 points to 17,417
- Nasdaq up 0.95%, 44 points to 4,683
- S&P up 0.89%, 18 points after testing the support in the 1,985/90 zone with a low of 1989 overnight. It has closed at 2,021
– European markets did better after the dates for meetings between the new Greek government and EU officials were set overnight. The Athenian stock market was up 3% but the chances of some sort of Greek haircut must be high. Earnings were under pressure in overnight announcements, especially in the Energy sector. Shell missing market expectations knocked 3.7% off the share price. This helps explain why the FTSE fell when most of the continent rallied.
At the close:
- London(FTSE 100) down 0.22%, 15 points to 6,811
- Frankfurt (DAX) up 0.25%, 27 points to 10,738
- Paris (CAC) up 0.44%, 20 points to 4,631
- Milan (FTSEMIB) up 0.56%, 116 points to 20,594
- Madrid (IBEX) up 0.49%, 51 points at 10,508
– Locally, after a really weak indication from futures traders yesterday morning, the ASX did really well to finish in the black up 0.3% to 5569.5. Overnight, the strength in European and US markets has buoyed futures traders with the March SPI 200 contract up 47 points to 5552.
– In Asia yesterday, however, it was a sea of red. Of particular note was the 1.3% fall in the Shanghai composite after the Xinhua news agency said there is another round of margin checks at brokerages coming soon from government regulators. Futures indications overnight are for further falls in Shanghai today. In Hong Kong, stocks slid 1.07% to 24,596 while the Nikkei lost the same percentage to close at 17,606. CPI in Japan today is going to be huge for the stock market (which is higher in overnight futures), expectations about the BoJ policy settings, and for the yen, which was under pressure from the US dollar again overnight.
– On rates markets, there was a little bit of weakness in the US with rates up 4 points on the 10s to 1.76%. German 10s closed at 0.32% and UK 10-year Gilts closed down 3 at 1.43%.
– Forex traders were buying dollars and crushing almost everything else except the euro – where positions are probably full and short. Of the major currencies, only the euro gained ground, up 0.27% to 1.1316. GBP dipped 0.49% to 1.5059, USDJPY rose 0.7% to 118.35, USDCHF rose 2.12% to 0.9236 and the USDCAD was up 0.61% to 1.2613. The Aussie is at 0.7759.
– On commodity markets, gold lost 2.39% to $1,255, silver dipped 6.65% and platinum lost 3.06%. Why traders were selling precious metals so hard is on the face of it a difficult one, but gold did have a bearish technical bias and they are all denominated in US dollars, so when it’s stronger it weighs on the price. Copper fell a little under 1% to $2.4555 a pound and crude has climbed back from below $44 and sits at $44.56 a barrel this morning. On the bulks, March iron ore was up 66 cents a tonne to $62.58 while coal for the same delivery was up 15 cents to $60.50 a tonne.
– On the data front, there are some big data points to be released. In Korea, we get important manufacturing data, CPI in Japan, EU CPI and then US Q4 GDP. Here in Australia we get private sector credit but the focus will be offshore.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
It looks as though some players are starting to see value in the energy sector. Shareholders in Beach Energy might have a decent day, following press reports this morning that Seven Group bought a 3.5% stake for about 94c a share. Seven sees the collapse in oil prices as a strategic opportunity and is on the hunt for takeover opportunities.
Like all investors who see upside in the oil price, Seven will need to juggle this outlook against the possibility that prices might get worse before they get better. However, this move which follows Seven’s acquisition of a $100m stake in Woodside last September, suggests they may be starting to average in to an increased energy exposure.
Seven’s move on Beach also comes just as it was shaping to retest its 2012 support level around 88c
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC