– The Dow and S&P 500 made new all-time highs last night. But it is the Nasdaq trading up to 5000, a level not seen for 15 years, which is the real headline grabber. All three levels are remarkable given where the US economy is and where it has come from. It’s also a testament to the power of quantitative easing. Indeed as Ken Rogoff wrote in the Boston Globe on Sunday, “The balance sheet of the US Federal Reserve Bank has ballooned from around $700 billion at the outset of the financial crisis to peak at more than $4 trillion.” A large chunk of that money has gone into the stock market but Rogoff notes that concerns about a bubble in stocks “are probably overblown.”
– Whatever your view of the value, or otherwise of stocks, Trading 101 says you have to trade the market in front of you. To that end, stocks remain in a bull market in the US and Europe and increasingly, as we saw again yesterday on the ASX, in Australia. Sure Europe dipped a little last night but the Chinese rate cut and some slightly weaker than expected data in the US has the bulls firmly in control. In overnight ASX futures trade the SPI 200 June contract was up 10 points and looking like it is going to have a great day.
– On the data front last night the signs of an improving global economy – albeit mildly – were seen in the HSBC and Markit manufacturing PMI’s. China was stronger yesterday at 50.7 and overnight Italy (51.9) and Germany (51.1) also beat expectations. France (47.6) and EU-wide (51.0) just missed expectations while in the US the Markit manufacturing PMI printed 55.1 (versus 54.3) but ISM manufacturing at 52.9 missed. Clearly the US economy is still doing relatively better than Europe. Having said that though personal and construction spending both missed to the downside.
Here’s the overnight global stock market scoreboard:
- Dow Jones up 0.86%, 156 points to 18,289
- Nasdaq up 0.9%, 44 points to 5,008
- S&P up 0.59%, 13 points to 2,117
- London(FTSE 100) down 0.08% to 6,941
- Frankfurt (DAX) up 0.07% to 11,410
- Paris (CAC) down 0.7%, 34 points to 4,917
- ASX Futures (SPI June) up 4 points to 5,941
– In Asia yesterday the PBOC’s weekend rate cut and the positive HSBC manufacturing PMI combined to drive Shanghai shares higher. The index closed up another 26 points to 3,336. Still short of the recent high of 3,402 but edging closer. In Tokyo the early strong rally faded with the Nikkei finishing up just 0.15% at 18,827. Stocks in Hong Kong rose 0.26% at 24,887. Futures indications are universally positive for Asian stocks today.
– On currency markets the US dollar was weaker early but as is becoming the way, US trade saw US buying. This has left the Euro under enduring pressure at 1.1183 while the Pound is also lower at 1.5364. USDJPY is back above 120 while the Canadian dollar is at 1.2534. The Aussie hasn’t done much and sits at 0.7767.
– US rates tanked last night with the 10’s up 10 points to 2.09%. Part of that could have been a Michael Casey article in the WSJ reminding traders that the fed is readying for a rate hike. rates in Germany closed at 0.31% while UK 10’s finished at 1.81%.
– On commodity markets gold ran into resistance in the $1,223 region and is back at $1,205. Crude was up earlier but has risen just 0.12% at $49.82 by end of trade. Copper is at $2.6965 a pound while on the bulks June iron ore dipped 86 cents to $60.69 a tonne. Newcastle coal was also a little lower. March dipped 90 cents a tonne to $70.55.
On the data front today we have the RBA at 2.30pm. But before that we get building permits in Australia. Offshore Swiss GDP will be interesting for Forex traders as will German retail sales. Canadian GDP is out along with the Redbook index and ISM New York index in the US.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
I featured Woolworths as a stock to watch last week as it went into its earnings report parked at the 78.6% Fibonacci retracement level and valued at a lofty 17 times earnings. The severity of the sell-off that followed its disappointing sales numbers and revised guidance is partly due to how aggressively it was valued going into the report.
So what now? The stock is yet to go ex-dividend and the high momentum selling for the past couple of days does not look like the kind of knife most traders would be thinking of trying to catch at this stage.
However the area around $28 looks interesting. From a chart point of view a trend low around here would yield and AB=CD pattern as drawn on the chart. It also represents support from previous significant highs and lows (dashed line). This stock is in the sin bin at the moment. However, at $28 it would be trading on a multiple of around 14 times F14 earnings and a dividend yield of 5%. Yield starved refugees contemplating 2.5% term deposit rates might start to find those numbers pretty attractive.
Ric Spooner, Chief Market Analyst CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC.