Here’s your Tuesday update on all that matters.
– Interesting data mix over the past 24 hours with Chinese and US Flash PMI suggesting strength and Europe – well, Europe is Europe. The impact was for a nonplussed performance on global stocks but currencies didn’t react as they should have, reflecting the World Cup effect where hardly anyone is watching at the moment.
– Yesterday, in a big surprise after a really solid flash Chinese PMI ripped higher to 50.8, the Hang Seng and Shanghai composite fell and it was a trend that followed around the globe with European shares lower and US shares basically flat.
– European flash PMIs were mixed with Germany (52.4), slightly undershooting expectations while France looks appalling as it struggles at 47.8, DOWN from 49.6 last month. The EU itself undershot as well, printing 51.9 from 53.4 last.
– In the US however, Markit manufacturing PMI ripped higher to 57.5 from 56.4 and existing home sales were up a very strong 4.9% in May, which should assuage some of Fed chair Janet Yellen’s fear about the housing market.
– In the end though after a small, rangey day, the Dow finished off 0.06% at 16,937, the Nasdaq rose 0.02% to 4,369 while the S&P was virtually unchanged, down 0.1% at 1,963.
– In Europe, stocks took the data more seriously though with the FTSE down 0.35% to 6,801, the DAX falling 0.66% to 9,921 and the CAC in Paris dropping 0.56% to 4,516. In Milan, the weakness in Italian stocks continued with the FTSE MIB down 1.33% while in Madrid stocks fell 0.33%.
– In Asia yesterday, the Japanese version of a PMI, the Nomura/JMMA index, was strong, popping from 49.9 to 51.1 but this didn’t help the Nikkei overly with a rise of just 0.13% to 15,369. Shanghai stocks fell 0.13% even though the HSBC flash PMI pop to 50.8 says that the raft of mini-stimuli the government has instituted is starting to work. There is a chart in my AUD piece from yesterday on the Citibank Economic surprise index which shows just how starkly the recent improvement in data has been. Today the only major release is the Chinese leading index of economic growth.
– Locally, stocks were 0.6% higher yesterday on a combination of iron ore miner strength, after the solid rise in prices since last week’s low combined with the strong Chinese flash PMI. Overnight though, the September SPI 200 futures are up just 1 point to 5,409.
– On global bond markets, at least the US 10s noticed the strong data but they only rose 2 points to 2.63% as they are firmly stuck in a range. In Europe however, bonds rallied on the disappointing data in the core of Europe with 10-year Bunds down 2 points to 1.33%. Gilts were also 2 points lower at 2.74% while 10-year bonds in Italy and Spain fell 4 and 5 points respectively. Australian 3-years rallied 1 point to 97.20 (2.8%) while the 10s on the SFE futures market rose half a point to 96.30 (3.7%)
– On Currency markets, the stronger-than-expected Chinese PMI saw the commodity bloc of Aussie, Kiwi and Canadian dollars rally but the Aussie couldn’t go on with it overnight and slipped a bit from the highs around 0.9440 to sit at 0.9423 this morning. Otherwise it was a fairly calm market even though the euro rising seems incongruous given data and bond moves – but the market is the market and it sits at 1.3602. Sterling is at 1.7023, also higher, while USDJPY is at 101.92.
– On Commodity markets, Iron Ore’s rally continues to recover from last week’s lows below $90 tonne with another 75 cent gain overnight to $93.75. Coal on the other hand slipped again, down 60 cents to $70.50 tonne. Nymex Crude for June backed off a little and sits at $106.01 Bbl but Copper fairly loved the Chinese data and is back at $3.15, up 3 cents lb. Gold is up a little at $1,316 oz while Silver is at $20.86. On the Ags, prices were mixed with Corn down 1.93%, Wheat 0.94% lower and Soybeans up 0.64%.
It’s a virtual data-free zone in Asia today with only the Chinese leading index out before we head to Europe for the German IFO business survey. Inflation report is out in the UK which will be watched closely for signs of a hike interest rates. During the US session there is plenty to focus on, including a speech by Philly Fed President Plosser, house prices including the Case Shiller index, new home sales and the Richmond Fed manufacturing index.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
On Friday, Bollinger Bands provided technical traders with a clue that the recent Resmed uptrend was losing momentum.
The upper Bollinger Band is a measure of standard deviation. It’s a statistical measure of the variance from a mean (in this case the 20 day moving average). Strong uptrends typically have a lot of candles crawling along the upper band and poking through it.
On Friday, Resmed made a trend peak that completed a double top or “M” style pattern. The first peak was above the upper band, indicating strong momentum. Friday’s peak was below the upper band indicating that momentum was fading. This loss of momentum often precedes either a period of sideways drift or a trend reversal.
Yesterday’s sharp move lower and gap below the 20 day moving average is making this look like a trend reversal. One upcoming clue for technical traders may be whether or not price rallies to fill this gap in the near future. Failure to do so would be a sign of weakness suggesting this is a “break away” gap. In that case the 200 day moving average may provide a potential support zone.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC