Good morning. What a night of moves, and cross-currents.
– Stocks in the US were higher for most of the day on weaker growth, while those in the EU played a bit of catch-up after Easter as well as being buoyed by news the ECB has hit its money printing target in March. Gold has dipped a little and oil’s resurgence continued. On currency markets, the euro is lower again after surging in the wake of the weaker than expected non-farm payrolls over the Easter break. That knocked the Aussie back into the low 76 cent region and stands as evidence the RBA is an important but marginal player in determining the Aussie dollar level at the moment. It’s more about the US dollar now.
– On the news front, it’s been a big one as well. We know Australia is struggling to get back to trend growth but it seems the IMF reckons the entire planet’s potential growth rate has taken a step down from pre-crisis levels. That’s important because lower global growth and a slowing in China ultimately means slower Australian potential growth. The IMF also reckons it has figured out what’s going on with the lack of business investment as well. Yes ladies and gentleman, Paul Krugman was right – business is reacting to the lack of demand. Again the parallel for Australia remains stark. As much as Governor Stevens is urging business to invest, unless or until consumers spend, there is little reason to invest> Feels like a negative feedback loop, don’t you think?
– In Europe, German Economy Minister Sigmar Gabriel said Germany wants to help Greece but “how one can do that, does still not appear to me to be very clear.” Which is interesting given the new deadline looming large for the Greek bailout. Tomorrow Greece has to pay the IMF around 2 billion euros but overnight UBS said that the chances of Greece defaulting are now “greater than 50%”. If you are watching closely, that’s not unexpected. But they still think that the chance of Grexit is just 20-30%. That uncertainty is not good for investment or the European economy but overnight the service PMIs for Europe were, with the exception of France, widely better than expected. So it’s no surprise then that France is going to challenge the 2016/17 EU structural deficit targets. Watch THAT SPACE folks – that’s a big move.
– Turning to the US and the JOLTS survey was higher than expected at 5.133 million. But the big news was a recognition from Minneapolis Fed president Narayana Kocherlakota that the first tightening might need to be put back to later this year. This is much more dovish than Fed rhetoric we heard prior to the non-farms on Friday. Speaking of the US, the markets are hitting the heights almost week after week as the uptrend continues but Bank of America says the US is heading for an earnings recession. The fall in crude and the strength of the dollar are the primary culprits, they say.
Here’s the overnight scoreboard (as at last trade for each market):
- Dow Jones down 0.03% to 17,875
- Nasdaq down 0.14% to 4,910
- S&P down 0.21% to 2,076
- London (FTSE 100) up 1.88% to 6,961
- Frankfurt (DAX) up 1.3% to 12,123
- Paris (CAC) up 1.52% to 5151
- Tokyo (Nikkei) up 1.25% to 19,640
- Shanghai (composite) BOOM! up 2.51% to 3,960
- Hong Kong (Hang Seng) up 2.15% to 4,260
- ASX Futures (SPI June) up 15 at 5,939 (6.38am)
- AUDUSD: 0.7628
- EURUSD: 1.0805
- USDJPY: 120.36
- GBPUSD: 1.4804
- USDCAD: 1.2515
- Crude: $53.95
- Gold: $1,209
– The Australian market was doing well yesterday before the RBA disappointed the buyers and we saw a reversal of fortune. Iron ore was up overnight, as was crude, which rallied strongly, so it could be a better day for the index today. It’s difficult to tell as the market flirts with and rejects recent highs. Not quite a triple top yet but another day or so and we’ll know.
– In Asia yesterday, not only did Shanghai get a lift from the US move but it also got a solid boost from the PBOC injecting another Y20 billion into the banking system. That, combined with talk of the establishment of a specific bank to prop up the property market, saw another amazing run higher. At the end of play, Shanghai was up 2.5%. We are now getting close to a 100% return in the past nine months. That’s incredible and another seven-year high.
– To bond markets, where Spain has become the latest member of the negative rates club. The WSJ reported that the “Spanish Treasury on Tuesday issued short-term debt yielding a shade under 0%. The €725 million ($796 million) in six-month Spanish debt delivers an average yield to investors of -0.002%.” Seriously, Mario Draghi should have statues erected all over Europe (especially the Club Med countries) for his performance in breaking Europe’s death spiral. Elsewhere rates were largely unchanged with US 10s at 1.89%, UK Gilts at 1.59 and German 10-year Bunds at 0.16%.
– On forex markets, the US dollar regained the ascendancy once again overnight. Euro has failed three times to break 1.1055/90 so traders are worried about its ability to sustainably rally in a technical sense and they also know that ECB QE is about debasing the euro as much as anything else. The only thing in the euro’s favour at the moment is that traders are uber bearish euro. Sometimes that’s all a market needs to steady – but at the moment the US dollar remains in the ascendancy. Which is why the Aussie is lower and the yen back above 120.
– On commodity markets, gold went back to fill the gap in trade over the weekend and sits at 1,209 this morning. Crude is higher as the rally continues and the stimulus from the PBOC helped Dalian iron ore futures rally a little. This has translated to an adjustment of prices on Nymex with June iron ore up 90 cents to $47.50. Newcastle coal for the same delivery closed at $52.50 down $1.35.
– On the data front today, we get the release of the delayed ANZ weekly consumer confidence data. I’m excited to see this after the AiGroup PSI and retail sales data yesterday suggested that the Australian economy is healing. Offshore we get the BoJ policy announcement, German factory orders, French trade, and EU retail sales. FOMC minutes in the US are vital tonight as well.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day:
The oil market looks as though it has arrived at a mini watershed. The West Texas market had another strong night to sneak above resistance and close on its high for 2015. The market is clearly expecting US production levels to start falling soon so the numbers are going to need to start reflecting this to maintain current upward momentum in the oil price.
As often happens, the Woodside chart has arrived at a critical chart level at the same time as oil. Yesterday’s rally looked like the early signs of another rejection of the triangle support shown on the chart below. Decent US production numbers this week could set up for a rally to and, potentially, a break through the triangle resistance.
However, this triangle support looks like a bit of a line in the sand. A clear break below it might be the time to show the white flag in anticipation of ongoing weakness in Woodside’s share price.
Ric Spooner, chief market analyst, CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC
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