Welcome to your brave new world.
– Crude oil has rallied hard again overnight which has helped stocks push higher across both North America and Europe but it has also taken a little bit of the risk-off tone out of currency markets. Also lifting spirits, particularly in Europe, are events in Greece where the new government seems much more conciliatory than their pre-election, even recent, rhetoric.
– On Greece, Craig James, Commsec chief economist, reports this morning that: “The Greek government ditched calls for a reduction in foreign debt and proposed ending a standoff with its creditors by swapping the debt for new growth-linked bonds. The Greek index rose by 11.3% – the biggest one day gain in almost 4 years.” Stability in Greece, assuming it continues, along with some slightly weaker growth in the US and a very extended market, is a recipe for a US dollar reversal which can build on last night’s move higher in currency markets.
– Turning to the data and I get a sense that the sweet spot in this recovery might be past for the US. That’s not good news and non-farms may prove me wrong on Friday. But last night’s release of ISM New York, 44.5 against 70.8 last, and factory orders, down 3.4% against -2.2% expected, suggest that the economy is back in the 2-3% range. Which is not bad but perhaps slower than many hoped and the US dollar has priced.
– But regardless of this and with oil on a tear at the close, the scoreboard in the US reads strongly positive
- Dow Jones up 1.76%, 305 points to 17,666
- Nasdaq up 1.10%, 51 points to 4,728
- S&P up 1.44%, 29 points to 2,050
– European markets are having an incredible run; the DAX near 11,000 is really incredible. But it’s a general level of ECB-induced ebullience which is keeping a bid tone in the market.
At the close:
- London(FTSE 100) up 1.32%, 89 points to 6,872
- Frankfurt (DAX) up 0.58%, 63 points to 10,891
- Paris (CAC) up 1.09%, 50 points to 4,678
- Milan (FTSEMIB) up 2.57%, 526 points to 21,012 – what’s good for greece is good for Italy and Spain.
- Madrid (IBEX) up 2.61%, 270 points to 10,598
– Locally the excellently performing ASX looks set for another solid day today with Futures traders falling over each other to buy in overnight trade. The March SPI 200 contract is up 96 points to 5,738. BOOM!
– In Asia, yesterday the Shanghai exchange moved well away from the important support level and the natural ex-poste excuse that China is slowing, so there must be more stimulus coming. There probably is but 2.45% in a day suggest some technical buying as well. At the close, the Shanghai Composite rose 77 points to 3,205. The Hang Seng was only up 0.29% to 24,555. In Tokyo, the Nikkei dipped 1.26%, 222 points to 17,336 after a weak response to a JGB auction and a reaction to the previous night’s Wall Street moves. Futures for the entire region are in the black though overnight so it should be a good day for stocks today in Asia.
– On currency markets, the US dollar was under pressure and the Aussie has ripped higher and is back above 78 cents, completely erasing the RBA induced swoon. I’ve had a look at what happened overnight here. Euro is back at 1.1483, GBP at 1.5164, USDJPY at 117.56 and the battler at 0.7808.
– On commodity markets, crude is up another 5.51%, $2.73 a barrel to $52.30. Copper went along for the ride, up 3.88% to $2.5865 a pound. On the bulks, iron ore ripped $1.24 a tonne for March delivery to $62.82 while Newcastle coal for the same delivery rose a solid $1.95 a tonne to $63.95.
On the data front, in Australia it is just the AiG Performance of services index before a raft of services PMI for China and then around the globe. In the US, ISM non-manufacturing PMI is the highlight along with the EIA crude stocks data.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Energy stocks are likely to be at the epicentre of what promises to be a red letter day for the Aussie stock market.
Santos is amongst the most leveraged of the major oil and gas stocks on the Australian exchange. It’s been dealt with harshly as the oil price fell so may have one of the better bounces as the oil price rallies.
All that said, the size and speed of the turnaround in oil has the smell of short covering. While US producers look like cutting production in coming months, Opec is pumping hard. It might be too early to get too optimistic on the oil price. This line of logic leads me to look at potential chart resistance levels for Santos. Here are 3:
- $9.05 which is a 38.2% Fibonacci retracement of the latest decline and a possibility for a measured ABCD move
- $9.60/9.75 – 50% retracement and also a measured ABCD target
- $10/10.20 – July 2012 lows (dashed line) and price gap
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC