Good Thursday to you all. Here’s what you need to know:
– It’s all about the US economy and the US dollar this morning as the Big Dollar swept the euro lower after the data from the two regions reinforced the divergent economic outlooks. NAB co-head of currency strategy Ray Attrill wrote this morning that the “juxtaposition of another significant downside Eurozone data surprise (German IFO) and a major upside surprise for US New Home Sales (+18%) has – unsurprisingly – pushed the EUR below 1.28 against the US dollar for the first time since 10 July 2013.”
– It is a seismic shift in markets which is depressing anything denominated in US dollars. The Aussie, iron ore, gold, commodities and currencies generally have all been under pressure lately even though last night they did better.
– More broadly, the US economy is getting stronger but still not strong enough to completely derail stocks as we saw again overnight with the Dow up 154 points for a gain of 0.9% to 17,210. The Nasdaq rose 1.03% to 4,555 and the S&P leapt 15 points to 1,998 for a gain of 0.77%.
– In Europe, ECB president Draghi repeated his “whatever it takes” comments which was timely given the German IFO data was released a couple of hours later. So at the the close, bad news and the promise of free cash saw European stocks rally with the FTSE up 0.45% to 6,706, the DAX 0.7% higher to 9,662 and the CAC in Paris up 1.25% to 4,414. Milanese stocks continued their volatility, rallying 1.67% while stocks in Madrid were 0.51% higher.
– Locally, the ASX futures market was buoyed by offshore moves with the December contract rallying a solid 23 points to 5,401. The rally in iron ore overnight – however ephemeral it may be – should help at the margin as well.
– In Asia yesterday, the big news was Japanese Prime Minister Abe’s comments that essentially said the yen has weakened enough and he is cogniscient of the impact on his Asian neighbours by yen devaluation. This sent the Nikkei lower initially but it recovered to be down just 0.24% to 16,167. Shanghai stocks ripped higher to their highest close since March 2013, up 1.48% to 2,344 after trading activity and account openings following some regulatory changes last week saw brokers move sharply higher. In Hong Kong, the market rose 0.36% to 23,922.
– Interest rate markets in Europe rallied a little, with German 10-year Bunds closing at 0.96%, Italian and Spanish 10s rallied 5 and 3 points respectively while in the UK, Gilts finished at 2.48%.
– On currency markets, it was interesting in the context of recent moves with Ray Attrill this morning highlighting that “commodity currencies sit at the top rather than the bottom of the FX leaderboard (BRL, AUD, ZAR, NZD and CAD in that order). The moves are aided by stronger metals prices (LMEX index +0.5%) and no further fall in iron ore. European currencies sit firmly at the bottom, with CHF, NOK, EUR, SEK and GBP showing losses of between 0.3% and 0.6%.”
– This is the big theme in Forex and the Aussie dollar, while under pressure against the US dollar, might do well against European crosses in the weeks ahead. This morning the Aussie is at 0.8882, euro at 1.2778, GBP at 1.6335 and the yen defied Abe’s comments and is back above 109 at 109.05.
– On commodity markets, iron ore bounced with the December contract up $1 a tonne to $79.55. Is it a sustainable bottom? Only time will tell. December Newcastle coal fell 5 cents to $66.25. Elsewhere, Nymex crude rose 1.43% to $92.87 a barrel, copper is at $3.05, gold is at $1,217 and silver sits at $17.67. On the Ags, wheat rose 0.97%, corn was 1.23% higher and soybeans dipped 0.32%.
Today Glenn Stevens is talking at 12.30pm in Melbourne and the market will be hanging on any further comments on housing or the Aussie dollar. US durable goods order tonight is the big global release.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
While glamour stocks like Apple and Alibaba, have hogged the headlines recently, Microsoft has been no slouch. The stock is currently 36% above its low in January.
This rally now sees Microsoft trading on a PE multiple of about 16.8 times forward earnings, its highest valuation for the post GFC recovery. If we are going to have a correction in US stocks, this relatively high valuation could make Microsoft a bit of a “canary in the coalmine” for broader market sentiment.
Despite last night’s recovery, Microsoft’s stock price continues to display divergence with the RSI in the box below the chart. This is a sign of indecision that often leads to one of 2 scenarios – either a period of ongoing sideways drift or a sell off. Traders often take divergence signals as an indicator that now is the time to sell with close stops. From here a break below the previous resistance at $45.70 would be a sign of weakness indicating the correction scenario is more likely than the sideways drift scenario.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC