Good morning. Here’s what you’ve missed.
– Red ink everywhere. That’s the story for stock market traders overnight as the selling that started in Shanghai floated around the globe to see European and US markets lower. Likewise futures trade on the ASX and across Asian markets indicates there is likely to be more selling in our time zone today.
– Of course, a pullback from new all-time highs, in the case of the Dow and S&P, 15-year highs in the Nasdaq and near-recent highs in many other markets is neither unexpected nor a disaster. But the apparent cause of the Shanghai sell-off is interesting in what it says about perceptions of the market. Reports from Shanghai are that with the raft of IPOs approved by the CSRC on Monday, which number 24 in all and 12 for Shanghai, weighed on sentiment as traders fretted that rather than attract fresh capital the new issues would simply drag money from current listed stocks. That’s a reasonable assumption at these valuations. No doubt the proximity of the NPC downgrading its growth forecast, likely anyway, for the Chinese economy this week is also top of mind.
– In Europe, the fall is interesting given that the data was pretty good. German retail sales were through the roof, printing 2.9% in January against 0.4% expected. That takes the year on year rate of retail sales growth to 5.3%. Jens Weidmann, the Bundesbank president, gave a speech in January where he talked about a boom in Germany – I didn’t get it at the time. I do now. Elsewhere, EU PPI dipped 0.9% in January taking the year on year rate to -3.4%.
– Elsewhere on the data front, Canadian GDP for Q4 printed 2.4% against expectations of a 2% annualised pace. Equally impressive was the upgrade for Q3 from 2.8% to 3.2%. This and the RBA’s decision to hold off on another rate cut helped the dollar bloc (CAD, NZD and AUD) outperform the rest of the forex universe. The Aussie is at 0.7818 this morning while the CAD is at 1.2485 and the NZD at 0.7564. How long the Aussie can hold above 78 cents depends on today’s Q4 GDP. The market is now expecting a print of 0.5% for the quarter and a year on year rate of 2.5%. Longer term however Morgan Stanley believes the Aussie is heading to 65 cents.
– Here’s the overnight global stock market scoreboard:
- Dow Jones down 0.47%, 86 points to 18,203
- Nasdaq down 0.56% to 4,980
- S&P down 0.44%, 9 points to 2,108
- London(FTSE 100) down 0.74%, 52 points to 6,889
- Frankfurt (DAX) down 1.14%, 130 points to 11,280
- Paris (CAC)down 0.98%, 48 points to 4,869
- Tokyo(Nikkei) down 0.06% to 18,815
- Shanghai (Composite) down 2.2%, 73 points to 3,263
- Hong Kong (Hang Seng) down 0.74%, 184 points to 24,703
- ASX Futures (SPI June) down 12 points at 5,907
– Looking at the local market, it is worth highlighting that the ASX 200 has been flirting with the top of its current up trend for a little while now. Yesterday it tried to break higher again but failed. Of course, the RBA was the fundamental ‘reason’ for the move but technicians might suggest if a price can’t break a level then it will soon reverse away from it. Something to be aware of anyway.
– On rates markets, US 10s rose another 3 points to finish at 2.12%. German 10s closed at 0.32% while rates in the UK rose another 5 points to 1.86%.
– On forex, other than dollar bloc strength, the highlight remains the euro flirting with recent lows. It’s sitting at 1.1173 this morning and increasingly looking like Greece destroyed any chance it had to rally after the January crash. Traders will be watching 1.1080/95 very closely. If it breaks, all hell could break loose in the market. Sterling is slowly drifting lower and is at 1.5361 while USDJPY sits at 119.68.
– On commodity markets, crude oil is higher with a rise of 77 cents, 1.55%, to $50.36. Gold is at $1,202 but copper dipped 1.69% to $2.652. On the bulks, iron ore for June rose 18 cents a tonne to $60.87 while Newcastle coal futures continued their recent low volume volatility. The March contract dropped $3.25 a tonne to $67.30 while June dipped $1.65 to $60.95.
– Q4 GDP is released today in Australia and while it is backward looking it will still be important in framing expectations about what the RBA will do next after holding fire yesterday but adopting a clear easing bias. There is a raft of services PMIs released by HSBC and Markit today across the globe and tonight we see both a Bank of Canada Board meeting and the US ISM manufacturing PMI.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Suncorp shares fell 2% yesterday. The Queensland based insurer released an update on the likely revenue impact of claims relating to Cyclone Marcia.
This is the second major hazard it’s had to deal with this year. The first was the hailstorm in Brisbane during November. Suncorp estimates it will have around 10,000 claims in Central Queensland relating to this Cyclone. The cost of these will be in the order of $120-$150m. The concern for investors is that a third event this year would place pressure on reserves and therefore on Suncorp’s dividend payout.
The stochastic indicator below the chart is moving sharply lower suggesting ongoing downward momentum in this stock. However, those looking for a buy point might be interested the support provided by the now well established trend channel around $13.15. A clear break below that support would start to look more like a major correction of the whole rally from $6.03. This might bring the 38.2% Fibonacci retracement level at $11.80 into play.
However, you’d think that more bad news or a significant stock market correction would be needed to see this sort of price.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC