Good morning. Here’s what’s happened so far.
– Newton’s First Law of Motion is at work in the markets if last night’s trade is any guide. Last week’s Fed meeting was probably the only material force that could have acted against the stock market rally in the US, and elsewhere, at this time of year. Given it did not (indeed, it unleashed Newton’s Second Law), stock markets are drifting toward the end of the year in a very positive mood. Equally however, it also seems to imply the US dollar is continuing to remain strong, crude oil weak and gold, well, gold is just irrelevant.
– In terms of news overnight, the big story is the Saudi oil minister saying oil could fall to $20 a barrel and he would not release the pressure on other suppliers. It caused a dead cat bounce in the price but it’s good news for the economy longer term.
– Interestingly, and an example of how transient spurious correlations can be, a week or so back an oil crash of more than 3% would have crushed markets. Last night – not so much.
– So with 15 minutes to go before the close, US stock markets are rising into the end of trade.
- Dow Jones up 0.81% to 17,949
- Nasdaq up 0.29% to 4,779
- S&P 500 up 35% to 2,078 – will it be an all-time high close?
– European markets were higher as well in quietish trade, although the highs came early in the day on most markets before a gradual drift into the close.
Anyway, at the close.
- London(FTSE 100) up 0.48% to 6,577
- Frankfurt (DAX) up 0.81% to 9,866
- Paris (CAC) up 0.29% to 4,254
- Milan (FTSEMIB) up 0.47% to 19,074
- Madrid (IBEX) up 0.07% to 10,371
– Locally yesterday was a solid day. 47 of 50 stocks in the ASX 50 higher, all sectors doing better and a solid 1.9% rise. Overnight, however, the market is down 13 points on the ASX futures with the March contract finishing at 5,395. That most likely reflects the makeup of the ASX and the dips in oil and iron ore overnight.
– In Asia yesterday, the Shanghai exchange was higher again, up another 0.59% to 3,127 but Shenzen was down 3.24%. Interesting divergence. Tokyo was strong early but finished up just 0.08% even though USDJPY is almost back at 120. In Hong Kong, the US lead helped and stocks finished up 1.26%.
– On currency markets, the US dollar was in the ascendancy once again with the Aussie dollar’s rally in Asia yesterday giving way to weakness. It sits at 0.8131 this morning. Euro was under pressure again as well after German import prices showed deflation is really taking hold. Euro is at 1.2219 while GBP is back under 1.56 at 1.5575 this morning.
– There is a fair chance that the weakness in commodities last night might have been a bit of a US dollar move as well. Gold fell 1.94% to $1,172, silver lost 2.4% to $15.65 and copper drifted a little to $2.875. Iron ore had a messy night with prices down more than 41 a tonne across the whole curve with March 2015 off $2.01 to $67.17. Newcastle coal finished at $62.55 while on the Ags it was quiet for a change with virtually no moves.
It’s the Emperor’s birthday in Japan so they’ll be out for the day. We have nothing out in Australia today but French, UK, and US GDP are out along with personal income and housing data in the US.
And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day
Kathmandu (KMD) investors are caught in a share market avalanche. The outdoor adventure gear supplier has had a very rocky 2014. Yesterday’s 22% drop means the share price has almost halved from the all-time high hit in May this year.
Looking at the chart below, you are forgiven for thinking the CFO has run off with the shareholders’ funds. Instead, the company issued a number of profit warnings over the year. Monday’s warning brings 2014/15 growth expectations to 14%, down from 20%. This is still a solid growth number, especially in the consumer discretionary sector. Some of the savage selling may reflect anger that the outlook for KMD has devolved so rapidly since the November results announcement.
At yesterday’s close, KMD is trading on 10x earnings, according to Bloomberg. This is cheap in a stock where long term growth expectations sit around 13%. Downgrades may see this LTG estimate revised down, but will still give a PE/G ratio around 1:1. Additionally, the weekly chart shows KMD trading just above the long term support/resistance at $2.00. A turning point seems close.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC