– BOOM, stocks ripped higher in the afterglow of the Fed’s statement the night before and a very solid print from Germany’s Ifo Business Climate survey of 105.5. Certainly that was only a smidge better than the 105.4 expected, but it wasn’t weak. Also positive, economically, was the dip in the weekly US jobless claims to 289,000.
– It seems that traders and investors are becoming more sure that the Fed will be tightening into a strong economy and as such they appear comfortable that the US dollar will rise, bonds will rise and stocks WILL ALSO rise. Noted stock guru Tom Lee reckons the S&P 500 is going to rally 15% in 2015. Certainly vol traders agree with the VIX down 25% overnight to 17.25.
– There are of course still a few bears out their and the actuality of rates rising might change things, but on reflection Janet Yellen gave the bulls 4-6 months of clear air in her press conference yesterday saying the next couple of meetings the Fed won’t raise rates. There’s an old saying that the trend is you friend, so the bulls have it for the moment.
– So 10 minutes from the close US stock markets are up strongly and belting toward Christmas.
- Dow Jones up 372 points, 2.14% to 17,729
- Nasdaq up up 2.10% to 4,741
- S&P 500 up another 44 points in a huge day to 2,057
– European markets bounced strongly out of the gates and rose all day. The Fed helped but Ifo Institute President Hans-Werner Sinn said in a statement after the release of the business survey that, “Dropping oil prices and a falling euro exchange rate are seasonal gifts to the German economy.” Yep low crude (it fell 4% overnight) is the best long term thing for the global economy at the moment – as long as we don’t slip into deflation.
Anyway, at the close.
- London(FTSE 100) up 2.04% to 6,466
- Frankfurt (DAX) up 2.79% to 9,811
- Paris (CAC) up an amazing 3.33% to 4,249
- Milan (FTSEMIB) up 2.65% to 19,061
- Madrid (IBEX) up 3.40% to 10,391
– Of course the impact on the local market is that futures traders are indicating a much stronger day ahead on the ASX. The SPI 200 March contract is up 69 points to 5,231 in overnight trade. The Santa rally is back.
– Yesterday’s Asian trade saw the Nikkei and Hang Seng move higher on the back of the renewed confidence that the Fed is on hold for another few months yet. In Tokyo the weakness in the Yen was also helpful for stock traders as the US dollar pushes higher and makes Japanese goods more competitive. Shanghai lagged trading through a 2% range from low to high but finished at 3058. Still an amazing level in context of the last 6 months though.
At the close yesterday:
- Tokyo (Nikkei Average) up 2.32% to 17,210
- Hong Kong (Hang Seng Index) up 1.09% to 22.832
- Shanghai (Shanghai Composite Index) down 0.1% to 3,058
– Bond markets are acting as though the Fed is coming with the 10-year Treasury up another 7 points, that’s a huge 2 day move now, to 2.21%. Still low and 6 or 12 months ago almost no-one would have thought US 10’s would be at 2.2% when the Fed was signalling tightening. UK Gilts were higher too, up 9 points to 1.87% after a stunning retail sales print of 1.6% in November against the 0.3% expected. German 10’s closed at 0.62%.
– Interest rate expectations are important for currencies so forex traders are acting rationally in taking the US dollar higher at the moment. Euro has crashed again and is at 1.2279 and the Yen sold off to 119.30 before rallying back a little with USDJPY is at 118.83. GBP is at 1.5666 and the Aussie is mid range for the night at 0.8155.
– Commodity markets remain interesting with Crude giving back most of its recent gains overnight with a 3.38% fall to $54.87 a barrel. Gold is at $1,199 and copper at $2.848. On the Ags corn is up 0.73%, wheat up 0.69% and soybeans rose 1.56%. On the bulks March iron ore rose 80 cents to $67.75 a tonne while Newcastle coal rallied to $62.80.
On the data front today the BoJ has an interest rate announcement today , we see the Gfk consumer confidence in Germany and a Bank of Canada interest rate decision.