– Stocks in the US and Europe ended the week in good shape Friday as traders reassessed the Fed’s comments and the enduring QE from the BoJ and ECB. It makes for a positive backdrop for stocks with central bank money drops as a strong tail wind. Also helping Friday was the reversal of the reversals reversal with the Us dollar weakening again. the Euro is above 1.08, the Aussie is back near 78 cents and the US dollar index is under 98.
– That’s a combination that should drive Asian and Australian markets higher today and this week. The ASX looks set to take out the 6,000 level and the question has to be asked if the global backdrop is enough to push it the 13% it needs to travel to hit the all-time high it hit pre-GFC. The local market has been the laggard of the recent global stock rally. It trails the Dow, S&P, FTSE 100 and others which have made new highs recently. Indeed the FTSE closed above 7,000 last week.
– But while QE and the bond market rally can drive the banks higher the weakness in commodity prices and the new 7-year low for iron ore, which has crashed again, and what it, and the fall in Australia’s terms of trade, says about the economy could be a headwind that ensures Australia continues to lag. Traders will be watching the trendline that stretches back to 2009 which comes in today at 6,011 as a potential point of resistance.
Here’s the overnight scoreboard:
- Dow Jones up 0.94%, 168 points to 18,127
- Nasdaq up 0.68% to 5,026
- S&P up 0.9% to 2,108
- London (FTSE 100) up 0.86% to 7,022!!!
- Frankfurt (DAX) Boom! up another 1.18% to 12,039. Incredible
- Paris (CAC) up 1% to 5,087
- Tokyo (Nikkei) up 0.43% to 19,560
- Shanghai (Composite) up 0.15% to 3,582
- Hong Kong (Hang Seng) up 0.98% to 3,617
- ASX Futures (SPI June) up 28 to 5,993
- AUDUSD: 0.7780
- EURUSD: 1.0845
- USDJPY: 119.86
- GBPUSD: 1.4964
- USDCAD: 1.2548
- Crude: $48.34
- Gold: $1,182
– As you can see in the moves above for commodities and forex the big move lower in the US dollar has materially altered the outlook in the near term for these assets. That’s something traders will be wary of because the positions that have built up long of US dollars and short of Aussie, Euro’s and other currencies, along with commodity positions could feed a solid rally. Given that it is also generally unexpected the chance of a snap higher is strong.
– That doesn’t mean the US dollar bulls will give up. Nor necessarily that the US dollar rally has ended. But for the moment with extreme positioning, the Fed’s comments last week and what appears to be an exhausted bull market he chances for the Aussie, amongst other assets, to extend. In the case of the Aussie toward 0.7950/70.
– Rates markets were better bid again on Friday which capped a remarkable week of solid capital gains. US 10’s rallied the most over the week finishing at 1.93% but it was german 10 years which made the biggest capital gain closing the week at 0.16%. Given there is an increasing recognition that there are not enough bonds in Europe to satisfy the ECB’s QE plans rallies look set to continue. That’s important for the Aussie dollar. With Australian 10 year bonds at a premium to all of Europe, Japan and the US it still remains an attractive destination for capital.
– On commodity markets as noted above the US dollar fall means that the pressure valve is released on the recent bear trends. Copper fairly surged 3.42% to $2.75 a pound. Crude rose more than 2% to $48.34 for April delivery, gold was up another $1,182. But on the bulks iron ore has crashed again with June 2015 off $1.53 a tonne to $51.83 on Friday. Newcastle coal was down 10 cents to $54.10 a tonne.
On the data front today it is quiet here in Australia and across the glbe with no major data to be released.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The next few weeks hold plenty of interest for the oil market. The oil rig count rig continues to drop. It’s nearly halved since late last year and was down to 825 last week. The refinery maintenance season will also be put behind us; improving oil demand so there are hopes for improvement in US the demand supply balance. There needs to be though. US oil inventories have ballooned and storage capacity is bursting at the seams. Markets will be disappointed if things don’t start to improve soon.
With all this in mind, the Woodside chart might be of interest for short term traders. It’s formed into a triangle pattern. From here a break of the triangle resistance would be a bullish indicator while a retreat to the triangle support and bounce off that level could present an opportunity to buy at better value in anticipation of an eventual break to the upside. A drop through support would suggest buyers might be better waiting for lower prices still.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC