Good morning. To make your Monday better, here’s a headstart.
– The week ended on a solid note after the Chinese interest rate cut and more soothing words from ECB president Mario Draghi about quantitative easing in Europe. It combined to see stocks in the US make new all-time highs on an intraday and closing basis while European traders were very keen on the moves.
– I need to editorialise here – the grand disconnect between free money and reality which one day could mean a horrendous selloff in stocks is that the easings in China and continued chat in Europe is specifically because the economies of the world need it. That is they lack either absolute, in the case of Europe, or relative, in the case of China, aggregate demand – it’s why inflation is falling and the economies are weak. So stocks rallying on such fundamentals is tenuous. Unless of course traders are now betting that the Fed can’t tighten into the Japanese, Chinese and European easing cycles.
– Anyway, back to the markets and at the close the Dow was up 0.51% to 17,810, the Nasdaq up 0.24% to 4,713 and the S&P 500 up 11 points to 2,064 for a gain, but down a little off the new all-time high of 2,071.
– In Europe, Draghi’s speech showed that at least he is getting worried about inflation. But given he oversees a fractious and moribund institution, I wonder if he’ll ever do much more than push down the euro and talk about things. Perhaps I’m being harsh on him and the ECB but the unemployed in Spain and elsewhere probably wish he’d do more than talk as well. At the close, the chatter had the desired effect on the euro (it target) which fell heavily against the USD, GBP, AUD and others. It also goosed stocks higher with the FTSE up 1.08% to 6,751, the DAX up 2.63% to 9,733, and the CAC 2.66% higher at 4,347. In Milan and Madrid, stocks were up 3.88% and 3.05% respectively.
– The good news is that locally futures traders took the SPI 200 Dec contract up 52 points suggesting a good day on the market today. That’s largely what we have seen most mornings over the last couple of weeks only to see the day end down. But I wondered in Friday afternoon’s ASX wrap whether all the bad news was priced in – the futures move suggests it might have been.
– In Asia, the day ended on a high note with the PBOC easing and it looks like someone might have got the whisper in Shanghai given the outperformance of mainland stocks over their Hong Kong counterparts. At the end of play, the Hang Seng was up 0.37% to 24,437 while the Shanghai composite rose 34 points or 1.4% to 2,487.
– In Tokyo, the Japanese Finance Minister, Taro Aso, said that the yen’s weakness had gone too far, too fast which pulled the yen up. But there was no appreciable follow-through on the USDJPY given the EURJPY move, sharply lower, later after Draghi’s comments. In the end the Nikkei closed up 0.33% to 17,358.
– On Rates markets, German Bunds fell 3 points to 0.73%, UK 10s were at 2.05% (wow!) and US 10s dipped 3 points to 2.31%.
– On Currency markets, the war is hotting up. We know the Japanese are now being conciliatory after getting USDJPY close to 120 but the Chinese RRR cut and Draghi’s words are aimed at their currencies respectively. In the end, euro is more than 200 points below Friday’s high at 1.2365 this morning, (100 pips, these are big ones) below the high in EURGBP and around 300 points below the high of Friday for EURJPY at 1.4586. The Aussie rose initially on the back of the Chinese RRR cut but it dipped back to sit at 0.8663 this morning off the 0.8720 high Friday night. The Fed will be watching what other central banks are doing and further, or too much, US appreciation will delay the rate hiking cycle in the US.
– Iron ore for Dec delivery only moved 5 cents on Friday night, closing down at $69.96 a tonne. It was a bit hairier out in the 2016 contracts where the average loss was around $1 a tonne. Dec 2016 closed at $64.88. Newcastle coal for Dec rose 10 cents to $64.75 a tonne. Elsewhere Nymex crude rallied 1.15% to $76.72 a barrel, gold is above $1200 at $1,201.50 this morning, copper is at $3.03 a pound and on the Ags it was a rip-roaring day for soybeans, up 2.1%, wheat was largely unchanged and corn dipped 0.71%.
– On the data front, it is a quiet day but German IFO tonight will be big.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The Murray Report into the financial system will be delivered to the Government at the end of this week. A key focus for bank shareholders will be any recommendations on increasing the amount of reserve capital banks are required to hold to support loans in general or housing loans in particular.
With this in mind, it’s interesting to see major bank charts approaching support levels. Only 3 weeks ago, NAB was approaching resistance. Sustained selling and the loss of its dividend saw this resistance not only rejected but now has the stock heading back towards support around $31-$31.50. This consists of the trend line at the bottom of a large trading range together with the 38.2% retracement of the last major swing higher.
A decline to and then rejection of this support level looks like a situation that may be of interest to both yield chasers and chart traders.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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