Good morning. Here’s what you’ve missed.
– Don’t worry about the weak data coming out of the US. That’s the message that the Minutes from the last FOMC meeting convey after they showed that many members still have a solid commitment to start hiking in 2015. But as Myles Udland from BI US points out the Minutes also show there is a big split inside the Fed with hawks stumping for sooner rather than later while the doves are thinking maybe 2016 is the best time to start. Reuters reports that Bill Dudley, the New York Fed president, told a conference overnight that even though “the bar is probably a little bit higher” for a June hike, he can still envisage “circumstances where a June rate hike could still be in play. If the economy’s strong, the unemployment rate is dropping, wages are rising, and the outlook is good, you could conceivably get to that point.” In the end that suggests the Fed genuinely sees the need to hike rates this year and will only be dissuaded if the data deteriorates further from here. That in itself is a decent hurdle.
– Besides the Fed the other big news overnight was the big dip in crude oil with the monstrous build in inventories announced overnight. The surge of close to 11 million barrels is the biggest gain since 2001 and roughly three times what analysts though the increase would be. Traders thumped prices lower both because of the large build but also because of the rejection of key technical resistance the day before. That gave a great level to sell off. So, this morning the April Nymec Crude contract is down 5.61% at $50.95. $49.86 is the key level to watch. If it breaks, traders will likely sell crude aggressively again.
– Turning to stocks and the Shell – BG deal helped the FTSE rally again but neither it nor the rest of Europe were able to hold onto any gains and European bourses were a sea of red at the close. In the US there has been a little volatility on the big stock indices either side of even. But that’s within a fairly tight range and subdued trade. But there was nothing subdued about trade in Shanghai yesterday. The Composite index traded up and through the 4000 mark before finishing just below it at 3,995 with a gain of 0.86%. That’s almost a 100% gain in just nine months.
– On the data front last night, the German factory orders for February missed by a mile with a print of – 0.9% against expectations of a rise of 0.5%. That’s a huge miss, and even though the euro didn’t falter initially, it did fall below the uptrend line that has constrained it since the lows last month. That’s a bearish signal and in trade this morning the EURUSD is sitting at 1.0779. The yen is back above 120 and the Canadian dollar above 1.25. In this context, the Aussie did really well to be up 0.66% from this time yesterday at 0.7686.
Here’s the overnight scoreboard (as at last trade for each market at 6.15am):
- Dow Jones up 0.15% to 17,902
- Nasdaq up 0.83% to 4,950
- S&P up 0.27% to 2,081
- London (FTSE 100) down 0.35% to 6,937
- Frankfurt (DAX) down 0.72% to 12,035
- Paris (CAC) down 0.28% to 5,136
- Tokyo (Nikkei) up 0.76% 19,789
- Shanghai (composite) up 0.86% to 3,995
- Hong Kong (Hang Seng) up an amazing 3.8%, not a typo, to 26,236
- ASX Futures (SPI June) up 5 to 5964 (6.20am)
- AUDUSD: 0.7691
- EURUSD: 1.0789
- USDJPY: 120.10
- GBPUSD: 1.4868
- USDCAD: 1.2540
- Crude: $50.87
- Gold: $1,202
– Something big happened yesterday in Chinese stocks. After months of lacklustre trade between the Shanghai and Hong Kong stock exchanges, mainland investors filled the the entire 10.5 billion yuan daily quota buying Hong Kong stocks. That’s hardly surprising given that Shanghai is up so far, so fast, but it augurs well for a continued surge in the Hang Seng while mainlanders bargain hunt. A word of caution, however, can be found in a number of areas when it comes to China at the moment. Of course, we have the fall in the rate of monetary growth which suggests a sharply slowing economy according to Oxford economics. We also have a potential bubble in Chinese tech stocks. But for me, the best indication something will go awry eventually is this quote I picked up on Reuters this morning – “The party has begun, and you can feel the excitement today,” said Chen Zhizhong, Shenzhen-based analyst at China Merchant Securities. It’s hard to say when the music will stop.” Indeed.
– The ridiculousness of European bonds continued with the Swiss Government issuing a 10-year security below zero. Yes, that’s right, you pay the Swiss Government to take your money. Bond rates in the US, UK and Germany were largely unchanged at 1.91%, 1.61%, and 0.16% respectively.
– Looking locally today and the futures don’t indicate much of a day. But given energy stocks were a key driver of the gains yesterday there could be some give back. Likewise, iron ore on the Dalian exchange dipped a little as well. So we’ll see if the proximity to 6,000 is once again going to be too much for the ASX to break.
– On commodity markets, besides the fall in crude gold was lower as the US dollar surged again. It’s broken support and while it dipped briefly below $1200 at one stage, it’s back at $1,202 this morning. Copper is down 1% at $2.74 a pound and April iron ore in Singapore is at $48.39. June Newcastle coal fell 45 cents to $52.05.
– On the data front today, we get the AiGroup’s construction index as the only data point in Australia. Offshore, after last night’s big miss in German factory orders, industrial production and trade will be worth watching. But the BoE decision dominates tonight. The US is quiet with 2nd and 3rd tier data.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day:
I featured Resmed as a stock to watch last week when it was approaching its recent high just above $9.40. It was beginning to show signs of divergence with the MACD momentum indicator, putting chart traders on notice that the stock was vulnerable to a period of sideways consolidation, if not a full blown downward correction.
As it happens, Resmed popped up to a new high around $9.80 in a brief burst of exuberance prior to the RBA meeting on Tuesday. Despite this, the technical warning signs that this stock could be running out of steam remain in place. There is now clear divergence with the MACD which is making lower highs even though the price made a higher high.
Not only has that, but the RBA’s failure to cut rates resulted in an “Island Reversal” on this chart. Tuesday’s candle has been isolated by gaps on either side. The first was potentially a powerful “continuation” gap, only to be followed by the next day by a gap in the other direction. This looks like a potential “exhaustion” gap. Island reversals at the end of an uptrend like this are seen by chartists as another sign of potential weakness.
With a large part of it’s revenue earned offshore, Resmed tends to move in the opposite direction to the Aussie Dollar. However, its quarterly results are also due on 23 April. Its chart is suggesting it may need to beat expectations pretty convincingly for the recent rally to continue.
Ric Spooner, chief market analyst, CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC
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