Good morning. Here’s what you need to know.
– Is this the start of the sell off? It could be, with the Dow down more than 100 points for the second day in a row and the much broader Russell 2000 index seeing a big technical change in a “death cross”. Likewise, S&P 500 futures closed weak breaking what looks like an important level on the charts.
– Time will tell and the death of this bull run has be proclaimed many times without any discernible change in what has been a very solid march higher for a number of years now. For the moment though, with the US dollar gaining ground and markets shifting their outlook to higher rates, the preconditions for a pullback seem to be growing.
– Indeed, the Aussie couldn’t hold onto its rally, reversing course back to 0.8840 this morning. Gold is still heavy at $1,224 and Copper is back at $3.03 a pound. It’s all about the US dollar and its strength which is being driven by the outlook both for the US economy and the Fed’s interest rate policy.
– The data flow last night reinforced this with the Richmond fed index rising to 14 from last month’s 12 and the US Markit preliminary PMI printing 57.9 versus 50.5 for Europe, an appalling 50.3 for Germany and a still weak 48.8 for France.
– At the close, the Dow was down 117 points for a fall of 0.68% to 17,056. The Nasdaq dipped 0.41% to 4,509 and the S&P 500 physical market lost another 11 points or 0.57% to 1.983.
– In Europe, the selling was more aggressive as the moribund state of the economy is apparent. At the close, the FTSE was 1.44% lower to 6,676, the DAX fell 1.59% to 9.595 and the CAC fell 1.88% to 4,359. In Milan, stocks fell 1.56%, while in Madrid they were 1.33% lower.
– The impact locally has been that the December futures fell 33 points overnight to 5,372.
– In Asia yesterday, Shanghai loved the better-than-expected preliminary PMI rising 20 points or 0.88% to 2,310. In Tokyo, the Nikkei fell 0.71% when the USDJPY lost ground and Hang Seng stocks were 0.59% lower.
– Surprisingly with the currency moves and stocks sell-off, bond markets were fairly quiet, although somehow US 10s rallied 4 points to 2.53%. In Germany, Bunds closed at 0.97% and in the UK, 10-year Gilts finished at 2.49%.
– On Currency markets, as noted above, the Aussie is weaker again this morning having reversed course after the US dollar regathered its strength around 11pm last night. It was a solid US dollar move, with the all the majors coming under pressure from its surge. This morning the Aussie sits at 0.8843 after a high of 0.8925, USDJPY is back up at 108.85, the euro is at 1.2849 while sterling is bucking the trend, back up at 1.6387.
– On Commodity markets, Iron Ore rallied a little overnight with the December contract up 80 cents to $78.55 a tonne. Newcastle Coal for the same month fell 40 cents, however, to $66.30. Elsewhere, Copper closed at $3.03 a pound. Nymex Crude rallied 0.94% to $91.72 a barrel while Gold sits at $1,223 and Silver $17.77 an ounce. On the Ags, Wheat was largely unchanged, Corn dropped 1.27% and Soybeans were down 0.71%.
– On the data front today, the big item is one which usually passes without too much comment with the release of the RBA’s Financial Stability Review. There will be a lot of interest in any comments on housng prices and any new rules or proposed control about lending. Around the same time, Westpac will release its China consumer sentiment release. Tonight in the US, it’s new home sales.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Packaging group Amcor ranks among the success stories of Australian companies that own and operate international businesses. This makes it a beneficiary of the weaker Aussie Dollar.
Its latest profit result was well received and saw a quick, near vertical price rise that peaked at $11.54. Since then it has gone ex dividend and formed a downward sloping flag formation that might interest chart traders.
A break through the resistance line of this pattern might now be a bullish development. However, traders looking for better value and risk: reward might be hoping for another return to the channel support as an entry point.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC