– More evidence overnight that the worst possible scenario for a Fed tightening might be playing out. Janet Yellen and her cohort are looking at hiking rates in 2015 because employment looks strong. But the data in the rest of the economy has been missing expectations for three months now and we saw that repeated overnight with the release of the ADP employment data (+189,000 versus +225,000) and the ISM manufacturing survey (51.5 versus 52.5 expected).
– To that end I saw an article on the MarketWatch website which posed the question, “Why is no one talking about a recession?”. It said:
The Atlanta Fed has constructed something called a “nowcast” — basically, an estimate of GDP growth just based on incoming economic data. The latest update to reflect Wednesday’s data on construction spending puts the nowcast at exactly zero. And still, the R-word isn’t escaping anyone’s lips.
That’s important because if the Atlanta Fed is correct the US dollar’s surge has to be finished which means the Euro, Canadian Dollar, Pound and Yen will rally under their own steam while the Aussie is likely to under perform on the crosses until the iron ore price stops falling.
– Speaking of forex traders, the Aussie is back under 76 cents, just, at 0.7597 this morning. It’s under performed the small gains in the Euro and Yen because of the big fall in iron ore this morning. It’s no understatement to say that the bears smell blood and iron ore is really tanking now.
– Stocks in the US noticed the weaker economic data in the run up to non-farm payrolls Friday and the upcoming earnings season and had a small swoon. Of course the falls during the day were nothing like the dips we saw in Asian trade on S&P and Dow futures yesterday. But Sam Ro wrote overnight that those moves are a little bit worrying in what some analysts believe they portend — a big correction!
Here’s the overnight scoreboard:
- Dow Jones down 0.44% to 17,698
- Nasdaq down 0.42% to 4,880
- S&P down 0.4% to 2,059
- London (FTSE 100) up 0.54% to 6,809
- Frankfurt (DAX) up 0.29% to 12,001
- Paris (CAC) up 0.57% to 5,062
- Tokyo (Nikkei) down 0.9% to 19,034
- Shanghai (composite)up 1.66% to 3,810 (WOW!) to 3,749
- Hong Kong (Hang Seng) up 0.73% to 25,082
- ASX Futures (SPI June) up 23 points to 5,870
- AUDUSD: 0.7597
- EURUSD: 1.0762
- USDJPY: 119.71
- GBPUSD: 1.4822
- USDCAD: 1.2618
- Crude: $49.62
- Gold: $1,203
– The surge in stocks in Shanghai was an amazing (ridiculous really) reaction to the official and HSBC manufacturing’ PMI’s yesterday. Both indices beat expectations. But the NBS PMI only just eked out a positive number with a print of 50.1 – just in the expansion zone. The HSBC version printed 49.6 and, by every measure reported, showed an economy contracting. But don’t tell Shanghai stocks traders who see everything through the lens of a reason to buy. No point fighting the market. But 90% in 12 months to me seems like it might be a little frothy!!
– The local market is likely to have a better day if futures traders are to be believed. The rally last night in the SPI 200 June futures of 23 points, however, seems at odds with the moves in US stocks and iron ore. Perhaps the big move in oil has helped some stocks. Either way its a short days trade so it should be fairly quiet before the 4 day break on the ASX.
– On commodity markets, news that US oil supply is finally reacting to the fall in price, by falling, drove the price of Nymex crude sharply higher overnight. I know what you are thinking and besides the academics no one really believes traders and investors are rational. April delivery rose 4.18% per barrel to $49.59. Gold was the other big mover, rising $20 an ounce to $1,203. It looks biased higher once more. Copper was fairly stable at $2.75 a pound while iron ore for June delivery fell $2.26 to $47.50. Newcastle Coal for June fell 55 cents to $54.50.
– Weaker data in the US also drove US long bonds down with the 10 year falling 6 points to 1.86% while those in the UK and Germany closed at 0.14% and 1.57% respectively. Bond traders are saying global growth is weak and QE will persist.
– On the data front today TD inflation is out in Australia along with the trade data from February. Tonight is fairly quiet globally but US Challenger jobs data and weekly jobless claims will be more important than normal given that non-farms is out tomorrow when most traders are absent from their desks.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day:
Super Retail Group
Super Retail is the owner and operator of a diverse range of retail brands including Rebel Sport and Supercheap Auto. The stock goes into today’s trading session with its chart interestingly placed.
A trend peak close to yesterday’s high would set up a trend channel. I’ve pre-empted this by drawing it in on the chart below. There would be a lot of symmetry about a channel like this. The cd swing would be the same size as the ab swing and would have taken the same time to complete (5 days).
I’ve got this possibility on my watch list as a potential sell set up. Confirmation of this trend channel would set up for a decline to break the channel support leading to a deeper correction in this stock. Of course if there is no trend peak around here and price just keeps rising, there is no set up.
Ric Spooner, chief market analyst, CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC