Good morning. Go the Socceroos.
– Stocks in the US and Europe were lower overnight as some profit-taking and weaker data in the US gave traders pause for thought. US rates rose (I haven’t got my arms around that one yet) and the US dollar is a little weaker. That’s interesting because the divergent German/US data last night was a great opportunity for the euro to kick higher. Once again, it’s looking like it can’t. Gold is slowly grinding higher and the Aussie dollar has drifted back a little. Crude is on a bit of a tear, up more than 3% and just below $49 a barrel.
– There might have only been two data points of import out overnight, but they were incredibly important. Westpac’s Imre Spiezer summed them up nicely in his morning report:
US durable goods orders fell 1.4% in Feb, a big drop from Jan’s (downwardly revised) 2.0% and the +0.2% expected. This is not a great update. Much has been said about the ports strike and weather holding back Q1 but this number has been weak for many months now. Economists will be shading Q1 growth forecasts a touch further given core capital goods shipments were also a touch weaker than expected at 0.2% and the prior month’s fall was revised to show a slightly larger fall.
German business confidence beat expectations, increasing for a fifth month in March. Further evidence that the economy is over the slump of mid-2014.
– Elsewhere in Europe last night, Greece failed in a bid to get some extra cash out of its eurozone pay masters. This is important, given it seems to be running out of money. But the WSJ is reporting this morning that the Greek central bank governor Stournaras is saying a Grexit is not an option. “Grexit would deliver no benefit, but a lot of pain,” he said. He also noted, in the context of the cash-strapped nature of the Greek government, that the ECB provided more aid for the Greek banking system today.
– In equity-specific news, Heinz and Kraft have agreed a merger creating a global food behemoth.
Here’s the overnight scoreboard:
- Dow Jones down 1.62% to 17,718 for a fall of 292 points
- Nasdaq down 2.37% to 4,876
- S&P down 28 points, 1.35% to 2,063
- London (FTSE 100) down 0.41% to 6,990
- Frankfurt (DAX) down 1.17% to 11,865
- Paris (CAC) down 1.32% to 5,020
- Tokyo (Nikkei) up 0.17% to 19,746
- Shanghai (Composite) down 0.79% to 3,662
- Hong Kong (Hang Seng) up 0.53% to 24,528
- ASX Futures (SPI June) down 44 points to 5,927
- AUDUSD: 0.7839
- EURUSD: 1.0971
- USDJPY: 119.40
- GBPUSD: 1.4871
- USDCAD: 1.2505
- Crude: $48.97
- Gold: $1,195
– Locally the ASX looks set to open under pressure after the poor lead from the US. That’s evident from the 44-point fall in futures. Equally the market continues to flirt with but reject, both the 6,000 level and overhead technical resistance.
– In Asia yesterday, there was no news or hope of more stimulus to rescue the market in Shanghai, with the index falling 0.79%. It has been a great run lately, one not anchored in the reality of a slowing Chinese economy but rather in the stimulus the slowing economy needs. That makes it somewhat vulnerable. But for the moment the bulls remain in the ascendancy.
– On bond markets, it’s hard to figure why US 10-years sold off given that stocks were down and the Durable Goods data reflected a weaker economic outlook. Craig James from Commsec says the wekness in the market emanated from a weak 5 year auction which saw the lowest bid to cover ratio since 2009. That makes sense in squaring and otherwise difficult to comprehend circle. Clearly the market might be a bit “full” on bonds at these levels. At days end US 1o’s were off 5 points on the day and 7 points from the low to end at 1.93%. German 10s finished at 0.20% and UK 10-year Gilts ended the day at an incredible 1.51%.
– On currency markets, the catalysts for a euro breakout are building. It should have been able to break last night, but once again it found overhead resistance too strong. That suggests that the weak US dollar longs are already out of the market and the heavy chopping must now begin if euro is to further advance. It’s up almost half a per cent at 1.0970, which is not terrible, but it needs to break 1.1030/50 to really get moving. The euro’s inability to kick on, or alternatively the US dollar’s strength, has halted the Aussie’s rally and it slipped back to 0.7840 this morning. Along with the yen and Canadian dollar, the Aussie is also ready to break – if the catalyst turns up.
– On commodity markets, crude oil rose on the back of a weaker US dollar. That was even with another huge build in US crude oil stocks. The price action of late suggests that genuine buyers are now entering the market. Genuine buyers seem to have returned to gold as well as it grinds higher to $1,195. Last night it was briefly over $1,200 an ounce and it’s starting to look good. On the bulks, iron ore fell $1.08 a tonne to $53.30 while Newcastle coal for June rose $1.05 to $55.50.
– On the data front today, there is nothing out here in Australia but tonight in Germany we get the Gfk consumer confidence, French GDP and UK retail sales which will be huge. In the US, it’s services and composite PMI data.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Gold inched higher and the Aussie Dollar inched lower last night. Both moves are on the right side of the ledger for gold miner Newcrest. However, for technical traders this chart has reached an interesting point.
Newcrest has had a good rally since dropping out of a double top pattern. Yesterday it arrived at the 78.6% Fibonacci retracement of this decline around $13.97.
This retracement level can be a handy indicator of whether a rally is a correction or a new move higher. If price gets well clear of the 78.6% level, there’s a good chance the rally is not a retracement but something larger. However, if Newcrest starts to struggle around this level then begins to fall away, it’s a sign that significantly lower prices might yet be in store for this stock.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC