– US stocks had their best week for the year with the major indices of the Dow, S&P and Nasdaq up 2.59%, 4.15% and 5.3% respectively after the big sell-off of earlier this month. It was a week where the fears of the previous sessions gave way to the hope that the earnings reports coming out were showing corporate USA was once again able to reach growth profitability through top line revenue beats, not just cost-cutting.
– Myles Udland of BI US reports that Goldman Sachs has doubled down on its recent call that stocks would pick up after earnings season by saying that we’ll see new highs this year on the S&P by Christmas and then stocks will rally 10% to 2,150 in 2015.
– So at the close Friday, the Dow was up 0.76% on its high for the day and the week, closing at 16,805. The Nasdaq rose 0.7% to 4,484 and the S&P 500 rose 14 points or 0.73% to 1,965.
– It is a very specific US-based rally though, with Europe’s bourses except the periphery of Italy and Spain nowhere near as hot last week. On Friday, the FTSE 100 fell 0.47% to 6,389, the DAX is 0.66% lower at 8,988 while the CAC dipped 0.69% to 4,129. Milan and Madrid rose 0.31% and 0.05% respectively.
– Locally though, the rally on the ASX continues with Futures suggesting another positive open this morning. On Friday night, December SPI futures rose 18 points to 5,419. Iron ore was higher Friday, as was Newcastle coal, which may help stocks today.
– In Asia, the Nikkei caught the US updraft and was up 5.23% last week. But the Hang Seng lagged with a more European performance and the Shanghai exchange fell 1.67% last week with relentless selling from the high of the week on Tuesday. The data didn’t seem that bad out of China but perhaps traders disagree. On Friday, the Nikkei was 1% higher at 15,292 while the Hang Seng and Shanghai exchanges were down 0.13% and 0.02%. All other things equal, Asia, with no major local data of note, should do better in trade today.
– Here is a question for trader though – how is it stocks rocketed but major 10-year bond rates didn’t budge over the week? US 10s closed at 2.27%, down 1 point on the week, German Bunds were largely unchanged at 0.85% while UK 10s were up just 2 points to 2.24%. Indeed, showing the dichotomy between risk and core rates in Italy and Spain rose 20 points and 12 points respectively to 2.52% and 2.18%. Archimedes would struggle to square that circle.
– On Currency markets, Forex traders decided that they were tired of trying to thump the Aussie dollar lower and it is at 0.8804 this morning after trading below 0.8730 on Friday. The yen is weaker though at 108.30 while the euro and GBP are at 1.2678 and 1.6080 respectively.
– On Commodities, December iron ore rose 69 cents to $79.73 while Newcastle coal was up 10 cents to $65.80 a tonne. Crude was down however, with a fall of 0.96% to $81.30, while copper was becalmed at $3.04 a pound. Gold closed at $1,231 while the Ags saw corn fall 184%, wheat lose 1.71% and soybeans dip 0.62%.
On the data front today, German IFO is the highlight of the calender tonight but the RBA’s head of financial stability Luci Ellis will be talking at an AHURI conference this morning. Pending home sales and Dallas Fed manufacturing are out in the US tonight.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The rally on the ASX over the past week or so has so far been no exception. By Friday, the ASX 200 index had gained 5% in 9 trading sessions.
But these types of steep recovery rallies have been a key feature of the stock market in recent years.
The question though is whether the recent break of key technical levels and big move through the 200 day moving average is a sign this is just a corrective rally on the ASX of something more sustainable.
Right now we’ve arrived back at the 200 day moving average and the old support line form earlier in the year. The average itself has flattened out indicating the potential for a choppy, range trading scenario. It would take another move lower in the near future to see the average start to rollover which would be a bearish development.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC