Good morning! Let’s get started.
– A very solid night as markets continue the recovery off last week’s lows and stretch the recovery into its fourth day for the S&P 500. Buy the dip is back as Myles Udland highlighted for BI US when quoting NYSE floor governor Rich Barry:
We knew it was just a matter of time before our ‘buy-the-dipper’ friends came back into the market. At last look, the S&P 500 is up 113 points from its Wednesday ‘panic’ lows, which equates to a 6.2% up-move in just four trading sessions. Expanding on this point a little further, over the last nine trading sessions, we have seen the S&P 500 index trade from 1966 on October 9th, down to 1820 on October 15th, (minus 146 points, or -7.4% in five sessions); immediately before the ensuing 6.2% rise over the last four days. Does anyone else feel like they just got off a roller-coaster??
Yep – roller-coaster indeed.
– Key to the recovery has been the changed perceptions about growth and interest rates. Fed Chair Yellen allowed a leak to say she still thought growth was going to be okay and then it became clear via more than one Fed President that rates are likely to be on hold for some time in the US. BoE chief economist Andrew Haldane suggested a similar outlook for the UK and Bank of England. Last night, we had fresh rumours that the ECB would buy corporate bonds. It speaks of a market addicted to free money, but that’s the market we face and last night, forecasts of the S&P 500 well above 2000 by year’s end started to surface once more.
– “Play the market in front of you” is an old trading adage and it seems that market wants to buy the dip.
– So at the close, the Dow was up 215 points or 1.31% to 16,615. The Nasdaq was on a tear up 2.38% to 4,419 and the S&P 500 surged another 37 points – yes 37 – for a gain of 1.94% to 1,941.
– In Europe, stocks were even more ebullient with the FTSE up 1.67% to 6,372, the DAX up 1.94% to 8,887 and the CAC up 2.25%. That suggests last week’s fear is washing out – for the moment at least. Stocks in MIlan and Madrid rose 2.79% and 2.39% respectively and their bonds fell 6 and 2 basis points, highlighting the risk-on meme.
– Locally, the recovery continues as well with the SPI 200 December futures contract up an amazing 55 points overnight to 5,365, signalling a strong start in trade today. Iron ore futures down 90 cents will take some of the gloss off but realistically, if the world is buying stocks, then the local market should do well too.
– Likewise, Asian weakness yesterday should give way to strength today. Yesterday’s Chinese GDP print of 7.3% wasn’t too bad and slightly better than the market expected but Shanghai fell 0.71% in the end and the Nikkei dropped 2% after the head of the Pension Fund, which was supposed to be changing its asset allocation, said yesterday he didn’t know anything about the rumour. The Nikkei ended down 307 points to 14,804.
– On Rates markets, US 10s closed at 2.23%, Bunds finished at 0.83% and Gilts at 2.17%.
– On Currency markets, the Aussie has been unable to break up through the little downtrend line at the top of the wedge and it is back at 0.8781 this morning. Euro is lower at 1.2715 with one of the world’s best known, and well performed, hedge fund managers David Tepper saying the currency is headed lower. USDJPY is back at 107 after printing below 106.30 at one stage yesterday, while GBP is at 1.6109.
– On Commodities, Newcastle coal for December delivery rose 50 cents a tonne to $64.55. Crude was largely unchanged at $82.81, gold is at $1,248 and copper is back above $3 a pound, settling at $3.02. On the Ags, wheat rose 1.13%, corn was 2% higher and soybeans an amazing 4% higher.
On the data front, the release of Q3 CPI in Australia is the big release locally. Japanese trade data will be eyed during Asia also but then the focus becomes the BoE minutes and rate cut details. US CPI tonight will be huge for expectations about the pace of Fed tightening while in Canada the BoC has a meeting and announcement.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
ASX 200 and the banks
After rallying more than 3% over the past 6 trading days, the ASX 200 index struggled to make much headway yesterday, gaining only 6 points. This coincides with the fact that it has retraced 38.2 % of the decline from mid-August.
Bargain hunting in the big 4 banks played a big part in the recent retracement so it’s interesting that they have also reached technical levels:
• CBA is at 38.2% as shown on the chart below
• ANZ and Westpac have arrived back at their 200 day moving average.
• NAB is at its 55 day average with the 200 lurking close above
These levels won’t mean much if the market just moves straight through them. But if we continue to struggle in this region and show signs of rejecting these levels (or not far above) then we could be in for at least a minor pullback
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC