– There are two big stories last night which, while they haven’t impacted US stock market ebullience, are important for framing the future of the market and where things might head in the months and quarters ahead.
– The first highlight is the impact that a stronger US dollar is clearly having on the US economy. Last night the trade balance for December was released showing a deficit of $46.56 billion, much worse than the $38 billion expected. Sam Ro has a wrap of the data but the key for me is that it has the economic fraternity recalibrating and downgrading Q4 growth and even though there could be some give back in Q1, according to Ian Shepardson of Pantheon economics, it does fuel the current macro feeling in forex markets that the US dollar is a little stretched.
– The second highlight, which quite frankly I missed earlier this week, is that there is a continued downgrading of earnings expectations for the S&P 500. Akin Oyedel from BI US reports that “After 8 straight quarters, S&P 500 earnings growth is coming to end.” That’s important for the ability of the market to continue to rally in the medium term.
– Looking elsewhere, concerns over Greece continue and while Athens teemed with thousands at a pro-government rally in Syntagma square, the meeting between the Greek and German finance ministers didn’t even seem to foster an agreement to disagree. The Athenian stock exchange came under pressure once again (-3.37%) and the Central Bank was forced to assure depositors. But it was the entreaty from Greek Finance Minister Yanis Varoufakis who said it was time to end the “gross indignity” because “too much time, hopes, lives” had been wasted under austerity which is probably the clearest sign that the Greek “issue” is unlikely to go away in a hurry and may get materially worse before it settles.
– Anyway, at the end of play Europe is spooked, the US is driving forward waiting for non-farms tonight and Asia looks like it is going to have a solid day today. Bonds are up and the US dollar weaker.
– At the close the scoreboard in the US reads strongly positive
- Dow Jones up a solid 1.2%, 212 points to 17,885
- Nasdaq up 1.02%, 48 points to 4,765
- S&P up 1.05%, 21 points to 2,063
– European markets finished mixed and under pressure.
At the close:
- London(FTSE 100) up 0.09%, 6 points to 6,866
- Frankfurt (DAX) down 0.06%, 6 points to 10,905
- Paris (CAC) up 0.14%, 7 points to 4,703
- Milan (FTSEMIB) down 0.59%, 123 points to 20,819
- Madrid (IBEX) down 0.4%, 42 points 10,536
– Locally, it could be 12 days in a row of rallies if the futures are to be believed. After a rise of 0.6% yesterday, futures are indicating a rise of 32 points with the March SPI 200 currently at 5,786 bid.
– In Asia yesterday, the Shanghai composite is giving some signs that it is getting the wobbles. It closed down 1.17%, 37 points to 3,137 but that’s way below the high of the day at 3,251. That’s a big move and focuses attention back on the 3,095 level once again. Trades will respect it unless or until it breaks, and we have seen one huge rally already this week. But it’s the level to watch still. Tokyo was also lower yesterday, down 0.98%, 174 points, but futures indicate most of this should be recouped today. Likewise, the Hang Seng futures are pointing higher after yesterday’s 0.35% rally to 24,765.
– On bond markets, US Treasuries came under pressure again with the release of jobless claims (278,000) suggesting a monster number tonight from non-farm payrolls. US 10s rose 6 points to 1.81%, German 10s closed at 0.34% and UK 10-year gilts closed at 1.55%.
– On currency markets, the worm is turning for the US a little – of course a big non-farms might change that – but the euro bounce from the 1.13 low yesterday in Asia to sit at 1.1483 speaks volumes of the market having price a lot into the US dollar, and euro, already. GBP is higher as well after hints from the BoE overnight that rates WILL be higher in 2015. It sits at 1.5333 this morning while the USDJPY is at 117.53. The US dollar fall has helped lift the Aussie dollar back to 0.7816. That won’t please the RBA, according to Westpac.
– Oil’s volatility continued with a huge rally overnight. Nymex crude rose 4.77% to $50.76 a barrel. Copper has regained the $2.60 handle, rising 0.37% to 2.6005 while gold is at $1,266. On the bulks, iron ore is down again with March futures off $1.15 a tonne to $61.29. Newcastle coal for the same month is up 55 cents to $64.10.
– On the data front, the RBA’s SoMP at 9.30am will seek to explain why they cut and what they see for the future. It’s a notoriously backward-looking document, so this would be a good departure from usual practice if it occurs. Offshore, French and UK trade data is out. But the big event is the release of US non-farms with expectations of an increase of 234,000.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The next few days promise to be a fascinating period for the Aussie stock market. We are going to get the answer to the question of whether the stellar buying momentum in “yield stocks” can continue without any sort of a pull back. If it does, it will provide a clue that dividend yields on stocks like the banks and Telstra are going to be bid down to levels that can only be about central bank activity pushing investors into these kinds of assets.
The chances are that the benefit of hindsight will reveal that a lot of the recent buying has been sourced offshore. Even so, today’s RBA monetary statement might be important to investor views in the short term. The extent to which the RBA downgrades its growth and inflation forecasts will provide some insight into how much further they might cut rates and how quickly they will do so.
With all this in mind, the NAB chart might provide some clues to investor thinking. It stopped at the resistance of its October 2013 high yesterday. This level will represent the first test of investor sentiment. Levels to watch above that include the 78.6% Fibonacci retracement of the GFC decline. This is around $38.65. Then there is the AB=CD projection as outlined on the chart below that cuts in at $40.87
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC