– The US dollar was under pressure again overnight losing 0.96% in USD Index terms. That helped the euro rally 1.2% but it was the Aussie dollar which was the standout, rallying 1.48% to sit at 0.7880 this morning. German Chancellor Merkel met with Greek PM Tsipras which also raised confidence that a Greek deal will be eventually reached. Traders will watch price action and levels very closely for the next few days because with some very large long US dollar positions (short everything else) in the market, the risk that the dollar reversal accelerates is growing.
– On stock markets, the Dow, Nasdaq and S&P all closed in various mild versions of the red, while stocks in Europe – except for the FTSE – were lower also. Crude was higher along with gold in line with the US dollar weakness. But it’s copper that is the real mover in global markets at the moment. Last night’s rally of 5.3% to $2.92 a pound was simply remarkable.
– On the data front, there was little of note out but we heard from both ECB president Mario Draghi and US Federal Reserve vice chair Stanley Fischer. Draghi highlighted that super low rates and QE are starting to gain traction in Europe. “The easing of lending conditions is progressing hand-in-hand with a resurgent demand for credit to finance business investment. In the longer-term perspective, this will increase potential output,” Draghi said. Across the Atlantic, Fischer confirmed that the first tightening was still expected to come this year. But his comment that the the path of rates would not be smooth was also important in the context of expectations of rate rises. Fischer said the economy will inevitably encounter setbacks. That’s another example of the pragmatism of the current Fed leadership.
Here’s the overnight scoreboard:
- Dow Jones down 0.06% to 18,116
- Nasdaq down 0.31% to 5,010
- S&P down 0.17% to 2,104
- London (FTSE 100) up 0.22% 7,037!!!
- Frankfurt (DAX) down 1.19% to 11,895
- Paris (CAC) down 0.65% to 5,054
- Tokyo (Nikkei) not bothered by the yen’s strength, up 0.99% to 19,754
- Shanghai (Composite) Boom again! Up 1.95% to 3,687
- Hong Kong (Hang Seng) up 0.49% to 24,494
- ASX Futures (SPI June) down 2 to 5,954
- AUDUSD: 0.7875
- EURUSD: 1.0945
- USDJPY: 119.69
- GBPUSD: 1.4950
- USDCAD: 1.2519
- Crude: $49.03
- Gold: $1,189
– The local stock market disappointed many yesterday given futures indicated it could take out the elusive 6,000 level. It couldn’t do it and once again turned away from a very important trendline which is acting as overhead resistance. With little lead today from offshore, stocks might struggle. But the miners like FMG could benefit from the solid rally in iron ore on the Dalian exchange yesterday and US futures overnight.
– In Asia yesterday, it was another stunning day of rallies. UBS upgraded its forecast for the CSI 300 index to 4,077. That helped it and the Shanghai Composite rally hard again. The composite rose 1.95% to 3,687 while the CSI300 was 2.04% higher to 2,972. This is a massive rally – here are many reports that it’s the longest since 2007. That doesn’t matter when the rally receives official approval as it seemed to yesterday. Reuters reported yesterday that Deng Ke, spokesman of the China Securities Regulatory Commission (CSRC) “told a press conference late on Friday, after the market had notched eight straight days of gains, that the rise in stock prices was a reflection of ample liquidity and improvement in corporate earnings, and that healthy market development was good for economic restructuring.” Rally on!
– Commodities and currencies were largely stronger on the back of the weaker US dollar but equally on the commodity front there are some bottom pickers who are starting to wade into the water. On the bulks, as noted above, iron ore for June delivery rallied. It closed at $53.43 – that’s still close to Friday’s multi-year low. Newcastle coal for June closed at $53.95.
– On the data front its flash PMI day with China kicking things off at 12.45pm AEDT. Over the course of the day there will be a number of other countries which also release their early estimates of PMI for this month. The big data points however are UK and US CPI, which will be very important in gauging the intentions of the BoE and Fed in regard to interest rates.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Last night saw another $US inspired rally in the oil price that comes despite there being no obvious signs of relief in the market’s oversupply problem. It may not be all about the Dollar. The market will also be conscious of the fact that as we move into the US summer, we could at last see some production cuts just when the driving season lift in demand starts to kick in.
If we are going to see a base formed in oil prices then Santos, as one of the more highly geared domestic energy stocks, could be one of the main beneficiaries. A steady to higher oil price would help to allay market concerns about the need to raise capital in the future.
The Santos chart is showing signs of rejecting support. A rally from here would confirm a triple bottom formation with the potential to return to the rectangle resistance around $8.60.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC