– The euro dipped below 1.10 overnight after the ECB confirmed that it will start its QE program on Monday. The euro is lower because the launch of QE means that Mario Draghi’s plan to rescue Europe will begin in earnest and keep downward pressure on European rates. That means US and EU rates are likely to diverge, or continue to diverge, as the Fed moves toward the start of its tightening cycle. In the immediate term for forex traders, this also means that tonight’s release of February non-farm payrolls will either reinforce that trend or take a little pressure off it. A big number (market expecting +240,000) will drive euro much lower with a weaker number releasing the pressure for the moment.
– One highlight overnight was that the ECB upgraded its growth forecasts for this year and next to 1.5% and 1.9% from 1% and 1.5% previously. That’s good news even though it’s still weak growth overall. Equally so, given the ECB downgraded its inflation forecast to flat this year and just 1.5% in 2016 nominal growth is going to be weak as well. What this means, and what stock traders will be focused on, is this combination suggests that ECB QE will need to continue past the cut-off date in 2016.
– So, the euro didn’t like the start of QE and the associated US dollar strength put the Aussie, GBP, CAD and NZD under pressure. But, European stocks ripped higher while their counterparts across the Atlantic were a bit more subdued but still positive. Australian traders weren’t quite sure given the big fall in iron ore over the past couple of days. By overnight, futures traders have the June contract up 2 points.
– The other big story of the past 24 hours has been the slight downgrading of the Chinese growth target to 7%. As NAB senior economist David de Garis wrote this morning, the change “came and went with little impact”. But with the downgrade comes an implicit promise of more stimulus in order to hit a 7% growth rate. This is particularly so given that Premier Li Keqiang said “the difficulties we are to encounter in the year ahead may well be more formidable than those of last year”.
– Here’s the overnight global stock market scoreboard:
- Dow Jones up 0.22% to 18,136
- Nasdaq up 0.32% to 4,983
- S&P up 0.12% to 2,101
- London(FTSE 100) up 0.6% to 6,961
- Frankfurt (DAX) up 1% to 11.504
- Paris (CAC) up 0.95% to 4,964
- Tokyo(Nikkei) up 0.26% to 17,752
- Shanghai (Composite) down 0.96%, 32 points to 3,248
- Hong Kong (Hang Seng) down 1.11%, 272 points to 24,193
- ASX Futures (SPI June) up 2 points to 5,884
– In Asia yesterday, the reset of growth in China seemed to weigh on the Shanghai and Hong Kong stock exchanges which both fell heavily. The growth rate target of “approximately 7%” would be the lowest growth rate this century. Interestingly, Bloomberg reported yesterday that in contrast to my expectation that 7% implies continued stimulus, Cao Yang, a Shanghai-based senior analyst at Shanghai Pudong Development Bank said: “The lower target may indicate less broad-based, aggressive easing measures than what the market expected previously.” That’s a headwind for the Chinese exchanges if that is generally accepted.
– On rates markets, US 10s are at 2.11%, German Bunds are at 0.30% while UK Gilts are at 1.89%. Tonight’s non-farms will be really important for US rates and Fed expectations.
– As noted above, on currency markets the US dollar was in the ascendancy and the Aussie dollar was dragged along, and lower, for the ride. It’s at 0.7769 and traders will be watching the 0.7725/35 region in trade today if it slips that low.
– On commodity markets, the up and down moves for Nymex crude continued with a drop of 1.18% for Nymex to $50.92. Gold was lower at $1198 after the US dollar gained overnight while Dr Copper sits at $2.653. On the bulks, the move lower in Dalian iron ore continued which repriced futures for June delivery down to $58.44. Newcastle coal dipped as well, with June falling 85 cents to $59.50.
On the data front today, we get the AiGroup’s performance of construction index at 9.30am in Australia while Japan will release its coincident and leading indices. Tonight we see German IP, Italian PPI and the second read of EU Q4 GDP. But it is the US non-farm payrolls and unemployment rate which is the big data point.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
If you are thinking of having a flutter on gaming machine developer Aristocrat, the chart looks interesting. As things currently stand, there looks a decent prospect of a double top being completed. This could provide a bit of a pull back for those looking to get set in this stock at cheaper valuations.
The RSI momentum indicator in the box below the chart is already trending down, making both lower highs and lower lows. This suggests the uptrend has lost traction and the stock is in for either more sideways drift or a full blown correction. If the double top is completed, the correction becomes the most likely of these alternatives.
It would be completed by a clear break below the support between the double tops at $7.26.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC