It’s Thursday. Let’s get to it.
– The Federal reserve released it minutes early this morning and while it is clear they still see some headwinds to the US economy, what is also clear is that psychologically the FOMC has moved to the when of rate rises and the how to communicate. This much was in evidence in a big chunk of the FOMC minutes discussing communication strategy. Colleague Myles Udland from BI US has more on that here.
– While a rational observer might expect that a read such as this would spook the stock market, the reality is the Fed’s communication strategy has evolved and been fairly successful under current chair Janet Yellen. So when rate hikes come they won’t be a surprise. That of course does not mean stocks won’t react, but it won’t be a surprise.
– So at the close the US stock market was little changed with the Dow off 1 point to 17,686, the S&P dipped 3 points to 2,049 which on any other day would have been an all-time high, while the Nasdaq had some stock specific news which knocked it back 0.56% to 4,676.
– In Europe early strength on the continent dissipated across the day as the ECB continues to have a debate about what it should buy, as part of its QE program, in public. Speaking for the negative sovereign bond case last night was Klaus Knot from the Dutch central bank who not only downplayed the prospect of deflation but also the actual benefits of QE itself.
– Europe – hamstrung by its own policy makers.
– Anyway at the close the DAX was up 0.17% to 9,473, the CAC was up just a tiny bit to 4,266 while the FTSE was pressured lower all day by the miners but still ended only off 0.18%. In Milan and Madrid stocks went in different direction rising 0.14% and falling 0.54% respectively.
– Locally iron ore was off again yesterday and the miners, particularly Fortescue, under pressure. It left the physical market off 0.57% yesterday and indications from overnight futures trade are that the market will open another 10 points down with Dec 2014 SPI 200 futures closing at 5,365.
– In China yesterday both the Hang Seng and the Shanghai composite were lower down 0.66% and 0.22% respectively. Chinese stocks completely ignored the solid Chinese MNI Business survey which bounced to 55.2 from 51.7 last. In Tokyo the Nikkei dipped 0.32% to 17,289 with the crash in the Yen unable to help stock traders at all.
– Today Asian traders will be on tenterhooks waiting for the HSBC flash Chiese PMI and the JMMA version of the PMI data for Japan.
– Comments from Knot didn’t help German Bunds which rose 6 points (that’s 7.33% in terms of capital loss (!) to 0.81%. In the US 10’s rose to 2.35% while UK Gilts closed at 2.15%.
– On currency markets the Aussie (0.8618) is under pressure again and it could test the multi year low near 0.8550 if the Chinese data is weaker than expected. Solid data will support however, or should! The Yen, or USDJPY, traded up above 118 overnight and sits at 118.02 up 1% in the past day. GBP is up at 1.5675 and Euro likewise at 1.2543 but well below the 1.2599 high.
– On commodity markets iron ore for Dec fell another $1.62 to $69.32 but in a sign the market might, MIGHT, be finding bottom the contracts from April 16 out all rallied with Dec 2016 up $2.26 a tonne. Dec Newcastle coal dipped 25 cents to $64.70.
– Elsewhere nymex crude didn’t move much and closed at $74.47, gold dipped to $1,183 and copper was back at $3.03 a pound. On the Ags soybeans are the king of volatility off 2% while corn and wheat both joined in the vol ride on the US bumper crop news also losing more than 2%.
In data release land today the Chinese flash PMI is, along with US CPI tonight the 24 hour highlight. Of course Chinese PMI also means a raft of global flash PMI’s so they will also be highlights and closely watched by traders. In Australia the RBA releases its FX transaction report which we might sneak a peek at to see if they have done any quiet selling to help the Aussie on its way.
And now from CMC Markets’ Ric Spooner is today’s Stock to Watch
This chart looks very different to those of energy producers. Caltex shareholders have done very well over the past 12 months as petrol refining margins have improved and the company has successfully converted its Kurnell refinery to an import terminal.
Yesterday was interesting though. It saw the largest red candle this stock has produced for some time. Caltex has recently had a number of broker downgrades, simply because analysts consider it’s getting too expensive.
For chart followers, yesterday set up potential divergence between price and the Relative Strength Index (RSI). Price made a higher high but the RSI has started making lower highs. It also broke below support in another sign of weakness. This divergence will be confirmed if price now makes a lower low, indicating potential for a pullback in this stock.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC