– An interesting 24 hours for politics and markets. The GOP now has control of the US Senate and the House after yesterday’s mid-term elections. While that means we have a ‘lame duck’ President in the Whitehouse, it also means that the Republicans now ‘own’ what happens on Capitol Hill so perveresly the grid-lock might actually break. Might!
– On markets US stocks seem to have taken the news well, but the key driver once again was US dollar strength against the Japanese Yen, which fell to 114.73 this morning (USDJPY higher = Yen fall). I have to think that Wall Street simply reckons Republican control is good for the US economy and so the Buck is doing well.
– Locally though the Aussie dollar was pole-axed both by the US strength and also by a convergence of forces which suggest it is heading much lower. It sits at 0.8589 from an 0.8762 high yesterday. I’ve covered the reasons here this morning and lower levels beckon.
– On stocks then the S&P 500 hit its all-time high again at 2,024 and sits just below it at 2,020 up 0.59% or 12 points. The Dow is up 0.58% at 17,485 but the Nasdq has turned negative in what was a choppy days trade. It is down 0.06% at 4,621.
– Datawise in the US, the ADP employment survey was up 230,000, beating expectations of a rise of 220,000, but elsewhere the data was a little weaker than expected with mortgage applications down 2.6% following last months 6.6%, and ISM services PMI printed 57.1 against expectations of 58 and down from 58.6.
– In Europe the raft of data painted the unfortunate but well-understood reality of a weak economy. German services PMI fell to 54.4, lower than expected and down from 55.7 last month. Italy clambered back above 50 but France printed 48.3. Overall EU services PMI printed 52.3. The big news was that retail sales across the EU fell 1.3%, worse than the 0.8% fall expected and dragging year on year growth from 1.2% to 0.6%.
No wonder there is no inflation.
– But why should stocks care? The bourses of Europe opened up strongly and rallied for most of the day. The FTSE was up 1.32% even though its services PMI dipped to 56.2, undershooting the 58.5 printed and expected, by a mile. On the Continent the DAX rose 1.62%, the CAC rose 1.88% and stocks in Milan were up 2.61% and 1.21% respectively. The bet, I bet, is Draghi and his colleagues on the ECB will do something tonight to get the economy moving.
– Locally, the impact has been a 12-point rally on the SPI 200 December futures overnight. But, while the offshore moves set up for a good day the fact that Morgan Stanley was so bearish yesterday, looking for the ASX to end 2015 below its current level, and iron ore and coal were smashed again suggests that the headwinds for the local market remain in place.
– In Asia yesterday Chinese services PMI and the composite index combining services with manufacturing disappointed and point to slower growth in the Chinese economy. Shanghai was down from the open and ended the day off 12 points or 0.48% at 2,419. Not too much to be made of that really given recent strength. In Japan services PMI was also weak and comments from BoJ Kuroda and one of his colleagues during the day reflected and enduring desire to get inflation entrenched which means as much QE and Yen weakness as it takes. So the Nikkei rose 0.44% to close at 16, 937.
– On currency markets, the Aussie is down heavily at 0.8589 this morning while the Yen has ripped higher and the Euro strangely manages to hold in reasonably well. Down but just below 1.25 at 1.2483. Sterling fell heavily after the data but recovered to be down but at 1.5971 at the moment.
– On commodities, crude had a bounce up 2.23% to $78.91 a barrel, copper dipped a little to close at $3.00 a pound and gold is one its way to $1,000, losing 2% to $1,142. Iron ore and coal were both lower with the December contracts falling $1.54 ($75.42) and 20 cents ($62.45) a tonne. On the Ags, corn rose 1.44%, wheat fell 1% and soybeans were 0.81% higher.
– On the data front, what could be more exciting for traders than the release of Australia’s most important monthly statistic which has no credibility? Today we see October labour data and the market appears to be looking a rise around 10,000, althugh I note Westpac is above 20,000.
– In Japan we get the leading index and factory orders in Germany as well as a raft of production and manufacturing data in the UK before the BoE meeting and then ECB interest rate announcements. In the US ADP jobs and jobless claims are the key releases.