– Stocks in the US and Europe ended the week stronger even though the third read of US Q4 GDP printed weaker than expected at 2.2% annualised and Fed Chair Janet Yellen confirmed she still believes rates will rise “sometime this year.” Perhaps it was the fact she added that the rate rises will be gradual – but then again that is the message Fed Vice Chair Stanley Fischer gave markets earlier this week. One thing Yellen did again – and something I keep banging on about – that when the first Fed tightening occurs is less important than what happens after that. Yellen and Fischers comments are incredibly important in that context.
– While the message on rates didn’t really hurt stocks last week it certainly gave some strength back to the US dollar. The Euro is under 1.09 this morning and the Aussie is under pressure again at 0.7750. The Canadian dollar is up at 1.26 and gold is back below $1,200. It’s a fractious time for Forex traders at the moment. It is widely recognised that the interest rate changes in the US will have a massive impact on global capital flows in favour of the US dollar. But some believe that is already priced into the Euro and other rates. I’m not one of them – in trend terms – and it seems neither is the Chinese Central Bank Governor, who warned yesterday that QE around the globe is going to drive the US dollar “too high” and create asset bubbles.
– The other noteworthy move Friday was the crash in oil which fell 4.98% with the front contract for Nymex Crude finishing at $48.43. This is because traders believe the actions of Saudi Arabia and its coalition in Yemen will have no impacts on supply. That’s the weird thing about financial markets – we overreact to news and then often reverse.
Here’s the overnight scoreboard:
- Dow Jones up 0.19% to 17,712
- Nasdaq up 0.57% to 4,891
- S&P up 0.24% to 2,061
- London (FTSE 100) down 0.58% to 6,855
- Frankfurt (DAX) up 0.21% to 11,868
- Paris (CAC) up 0.55% to 5,034
- Tokyo (Nikkei) down 0.95% to 19,285
- Shanghai (Composite) up 0.27% to 3,691
- Hong Kong (Hang Seng) flat at 24,486
- ASX Futures (SPI June) down 34 points at 5881
- AUDUSD: 0.7746
- EURUSD: 1.0890
- USDJPY: 119.22
- GBPUSD: 1.4880
- USDCAD: 1.2597
- Crude: $48.43
- Gold: $1,198
– You’ll note that the FTSE in London went the opposite way to the rest of Europe and the US. That’s because BoE Governor Mark Carney seemed to contradict his Chief Economist Andrew Haldane, noting rates are still more likely to rise than fall. It hasn’t helped Sterling that much as it sits at 1.4884 and it certainly didn’t hurt 10-year Gilts which closed at 1.57%.
– The local market looks like it is going to have a very interesting open. The woes of the iron ore miners look set to continue with iron ore down again Friday and looking like it is headed lower. With oil also down many stocks in Australia’s energy and materials sectors will be under pressure today.
– In Asia Friday the Nikkei still doesn’t like the Yen’s strength. Equally, data out of Japan was interesting. CPI was in line with expectations printing 2.2% year on year. But retail sales were worse than expected down 1.8% year on year. In Shanghai stocks rallied again, while the PBOC Central Bank Governor yesterday commented that the country needs to be wary of deflation. That implies more stimulus will be forthcoming to keep the economy on the path the Chinese leadership wants.
– As noted above, forex markets are getting ready to kick off again with the US dollar in the ascendancy both in its own right – against the Euro – and with a little commodity movement in the case of the Aussie, Canadian dollar and Norwegian Krone amongst others. It’s a short week and non-farm payrolls in the US are released on Friday – yes, Good Friday – so expect a lot of two way flow and positions being cleaned out and held with less conviction before the long break.
– On commodity markets, oil and gold, both pulled back and copper fell 1.77% to $2.77 a pound. Iron ore was hit hard as noted above, while Newcastle coal for June delivery was up 15 cents to $56 a tonne.
On the data front today the Governments tax discussion paper is interesting but otherwise there is nothing out here at home. European consumer confidence is out and US personal income and consumption data is really important in helping shape expectations of the timing of the Fed move.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day:
Crown Resorts Ltd
Crown’s share price has suffered recently with investors nervous about the impacts of China’s corruption crack down on casinos in Maccau as well as tepid consumer confidence in Australia.
However, potential buyers will be interested in the fact that the strong downtrend in Crown is showing signs of losing momentum. One indicator of this is that Crown made a high momentum trend low under the lower Bollinger Band a couple of weeks ago followed by a much lower momentum low on Thursday that bottomed well above the lower band.
This situation tends to result in one of two outcomes; either a period of sideways drift before the downtrend resumes or the beginning of a new uptrend. If Crown can manage another strong day today, closing above Friday’s high and the 10 day moving average, then the uptrend alternative would look the most likely, with potential for a test of the 20 day moving average around $14
Ric Spooner, chief market analyst, CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC