The overnight update you’ve been waiting for is here.
– The wrangling in the US stock market continues and while the the bulls are clearly winning with markets near all-time highs, the chorus of disquiet hasn’t gone away. Societe Generale’s Albert Edwards wrote today that “the US profits margin cycle has begun to turn down at long last.” But Goldman Sachs’ David Mericle took the other side: “We think it is premature to call the Q1 decline a turning point.” Turning points are never easy to call – hence the argument – but Edwards’ thoughts will resonate with many traders.
– So after another day’s, battle US stocks were down marginally with the Dow off 0.13% at 16,722, the Nasdaq falling 0.08% to 4,234 and the S&P 500 down just a point to 1,924. This is interesting in the context of very solid ISM New York (55.3) and factory orders (+0.7%) but perhaps traders were more worried with Kansas City Fed president Esther Georges comments that “While some have argued the aggressive easing actions taken during the crisis required courage, both from a policy and political standpoint, I expect the normalisation phase will require a great deal more.” That is a gauntlet!
– In Europe, more news suggesting the ECB must act tonight with EU CPI printing 0.5% versus 0.7% expected. The trade was fairly light and although most European bourses were off the lows of the day, the indices we follow all ended in the red. The FTSE was down 0.41% at 6,836, the DAX fell 0.30% to close at 9,920 and the CAC dropped 0.26% to 4,504. In Milan and Madrid, stocks fell 0.64% and 0.47% respectively.
– But the big news was the continued bounce in US bond markets from the short covering-induced low of 2.40% in the 10-years last week. Overnight, whether on the back of Esther George’s comments or the really solid rise in car sales reported by the manufacturers, 10s rose another 7 points to 2.60%. That is a huge round turn in a week and belies the current market “low volatility” meme. Last night’s move in the 10s was a 2.83% capital loss.
– So the washup of all the above is that on Australian markets overnight the June 10-year bond contract fell a solid 6.5 points to 96.22, taking rates up to 3.78%. The 3s were also higher in yield, closing this morning at 2.83%, up four points. On ASX futures, the June SPI 200 contract was up 10 points (iron ore rose a little) to 5490 bid.
– In Asia yesterday, the solid Chinese non-manufacturing PMI was balanced out by a miss in the HSBC manufacturing PMI, so stocks in Shanghai fell 0.8% to 2,038. But the Hang Seng was on a bit of a tear, up 0.91% to 23,291 while in Japan the Nikkei was buoyed by the huge rally in USDJPY, which sits at 102.52 this morning. Comments out of Japan yesterday that it is too early to end the stimulus were the major catalysts. Today in Asia, only the Markit Services PMI is out for Japan.
– On Currency markets, as mentioned USDJPY soared while elsewhere and once again incongruously with the ECB tonight, the euro rallied back to 1.3625. Sterling sits at 1.6748 and the Aussie is doing a bit of range trading after hitting a high in the 0.9280’s yesterday before settling back to sit at 0.9263 this morning.
– Nymex June Crude is up 0.36% to $102.84 and Gold sits at $1,244.70 this morning while Silver is at $18.76 oz. Copper went backwards and is at $3.15 and Iron Ore futures for September delivery rose 25 cents to $93.50 tonne. On the Ags there was carnage with Corn down 1.61%, Wheat down 1.29% while Soybeans dropped 1.32%.
On the data front today, Australia’s Q1 GDP is out at 11.30am before a raft of global services PMIs tonight and EU GDP for Q1. In the US, in the run-up to non-farms Friday the ADP employment report is out along with the Fed’s beige book early tomorrow morning.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Some interesting developments here. Friday’s turnover in this data analytics and credit information provider was about 10 times the average. This was followed up yesterday by a 6% drop in price.
Fibonacci traders looking for a bit of value may have a couple of projection clusters on the watch list at this stage. The first is centred around the 50% retracement level at about $2.08. The 2nd is around the 61.8% retracement around $1.98.
These are not necessarily support levels but if the market rejects one of these areas by making a low and starting a rally it would begin to look like an “abc” correction which is a common chart pattern. Once an abc correction is completed the next leg of an uptrend gets underway.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC