The weirdest thing happened last night.
– Just 24 hours before the FOMC is widely expected to end QE, global asset markets decided to act as though they are going to hold fire. It saw the ignition of a risk-on rally from currencies to stocks and bonds and in the end it was a great night on US stocks with the Dow up 188 points to 17,006 for a gain of 1.12%. The Nasdaq was up 1.74% and the S&P was 1.19% or 23 points to 1,985.
– These moves are hard to fathom given the fact that the data in the US overnight printed much weaker than expected. Normally you’d be forgiven for expecting such data to knock stocks but Wall Street rallied hard and the US dollar sold off. Specifically, durable goods tanked 1.3% in September against an expectation of a rise of 0.5%. Case Shiller house prices also missed expectations, rising just 5.6% year-on-year but consumer confidence was 94.5 against 87 expected.
– Squaring the circle between the the weakness in durable goods a stock rally and the fall in the US dollar is difficult unless there is some small part of the market which expects that QE might not end tomorrow morning after this month’s FOMC meeting. That would be a huge call and is unlikely, but for the moment, buyers have the ascendancy.
– Likewise, European stocks were higher with the DAX up 1.86% to 9,068, while stocks in Milan were 2.36% higher and stocks in Madrid rose 1.96%. By comparison, the FTSE and CAC were quiet, up 0.61% and 0.4% respectively.
– Locally the impact was that the December SPI 200 rose 29 points to 5,474 after the physical market managed to recover the early morning weakness yesterday. The weakness in iron ore and coal, which slipped back under $65 a tonne, overnight might be a small headwind but the market is expected to open on the strong side here in Australia.
– In Asia yesterday, the Shanghai exchange was on a tear, rising 2.08% to 2,338, the Hang Seng was 1.63% higher while the Nikkei fell 0.38%. The news out of China was that the strength in Shanghai was related to hopes, some say expectations, that the PBOC will follow up recent economic weakness with more stimulus. It’s purely speculative and nothing over the past 8-10 months suggests that the PBOC and Government are going to deviate from their current targeted approach.
– On Bond markets, US 10-year rates rose 4 points to 2.3%. Four points is two-fifths of not much in the grand scheme of things but the move fits a risk-on narrative for US markets. Is there a shock coming from the FOMC?
– On Currency markets, the Aussie dollar bears will be unhappy with the move up to 0.8881 overnight and while it has slipped back a little, it is still strong at 0.8853 this morning. Realistically it just looks like the market got too short last week and we are seeing a reversal now. Likewise, the euro is stronger at 1.2734 and the pound is at 1.6134. Only the yen was weaker with a move back to 108.15 this morning.
– Commodity traders are selling iron ore and coal once again, with December 62% ore down 87 cents to $78.13 a tonne while December coal fell 25 cents to $64.95. Elsewhere, Nymex crude had a positive move, up 0.63% to $81.51 and gold is at $1,228. Copper has broken out and is at $3.09 a pound this morning while on the Ags, soy beans gave back a tiny bit of yesterday’s huge rally, losing 0.56% but corn was 0.44% and wheat rose 1.68%.
On the data front, the cupboard is bare again in Australia today but the Westpac MNI China consumer sentiment survey is out at 12.45pm. The big event of the next 24 hours, of course, is the FOMC meeting.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Alacer Gold looks like a pretty conservative option when it comes to gold mining stocks. It’s a low cost producer with an all in cost of production well below the current gold price at $US763 per oz. It also has no debt and $320m in cash reserves.
Alacer’s main asset is an 80% interest in the Copler mine in Turkey and the company is currently pursuing a sulphide project which has potential to extend the mine life by 20 years adding 3.2m oz to reserves.
It’s a Canadian company but it can also be traded on the Australian exchange. The production report released yesterday showed a 27% increase in gold mined to 63,536 oz for the September quarter.
The Alacer chart looks very like the gold chart. Both look as though they may be in a large triangle formation that dates back to the June 2013 low. Like gold, Alacer bounced tentatively off the support of this triangle a few weeks ago but this remains a key level. If Alacer can stay north of this support in the low $1.90 area, then from a chart point of view the prospect of a rally to resistance above $3.00 remains a prospect.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC