It’s cold out there. Warm up with this update of all things hot overnight:
– To quote Emma Lawson, NAB’s senior FX strategist, in her morning note today: “With no new news flow and fatigued investors…there was a lot of drift overnight.” Which meant that “Most markets slowly reversed their moves of the prior few days: equities were weaker, US yields were lower, oil and gold were off and the USD was softer.”
– It is a repeat of what we have seen so often over an extended period of years now in this stock market rally – new highs, slight reversal then onward and upward. The question of course is whether it will be the same or different this time, but with Alcoa kicking off earnings season tonight in the US we might be about to get some decent news flow to drive markets and give an insight into the economy and company earnings.
– Looking specifically then, the Dow was down 44 points or 0.26% to 17,024, the Nasdaq dropped 0.76% to 4,452 and the S&P 500 fell 7 points or 0.37%.
– In the UK, stocks fell 0.61% to 6,824. But on the continent, weak German industrial production data (-1.8% versus +0.3% expected) knocked the DAX down 103 points or 1.03% while the CAC fell 1.41%. Stocks in Milan fell 1.33% and those in Madrid dropped 1.09%. Part of the sell-off also was the news that the newest member of the ECB Governing Council, Lautenschlaeger, spoke against asset purchases.
– The impact of overnight moves has only been small on ASX futures trade, with the September SPI 200 contract off just 4 points to 5474.
– On Bond markets, the impact of the stock fall has been a rally with US Treasuries down 3 points to 2.61%. But Bunds only dipped 1 point to 1.26% and Gilts in the UK rallied 3 points with US markets at 2.73%. On the Sydney Futures Exchange, the 3-year bond contract rose 2 points to 97.34 (2.66%) while the 10s moved just half a point higher to 96.445 (3.555%).
– In Asia yesterday, the Japanese leading economic indicator was a little lower than expected at 105.7, which added some weight to the Nikkei’s fall, but it felt more like the European and US selling started in Tokyo. At the close, the Nikkei was 0.38% lower at 15,379 while stocks in Shanghai barely moved, closing at 2,060. Today we see Japanese trade.
– On Currency markets, it was the Lautenschlaeger comment which seems to have outweighed the weak German data. But exactly what did the market expect the newest Bundesbank appointee to the ECB to say? Anyway, euro rallied a little and is back at 1.3604 this morning. Sterling was unable to kick on and has dipped back to 1.7126 while USDJPY has dipped back to 101.82. The Aussie fell initially yesterday but was rescued by the stronger data flow and has now rallied back to the 200-day moving average and sits at 0.9369 this morning.
– On Commodities, the big news was on the Ags. It’s pouring in the WA wheat belt but more importantly in the US, the good weekend weather has raised expectations of a bumper crop. Wheat fell 4.05%, Corn dipped 1.80% and Soybeans were 1,78% lower.
– Elsewhere September 62% Fe Iron Ore futures were $1.17 lower at $95.25 tonne. Newcastle September Coal was off 15 cents to $70.35 tonne. July Crude lost 0.64% to $103.39 Bbl, Gold is at $1,320 oz with Silver hanging onto $21 at $21.03. Copper closed at $3.25 lb.
On the data front, I can’t wait to see what the NAB Business Survey says at 11.30am about confidence and conditions but also the employment index. Tonight in Europe we see German trade data which is really important along with French trade, UK industrial production and US consumer credit.
And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day
What’s going on at SMS Management? Shares rose 4% yesterday, in a flat market. This means SMX is up almost 20% in just over two weeks. There is a buyback in operation, but no other company announcements in that period – a time where SMX has outperformed the broad market and its IT sector peers.
The answer could lie in the removal from the ASX200 index in March this year. Fund managers who are benchmarked to the index become forced sellers when a company drops out. As shown below, SMX’s recent rise is a recovery from a sell off. The lift in price, and the fact that volumes have dropped away to around half of the March average, suggests the index related selling may be done.
However, with the number of M&A deals in the market, there may be other explanations. The approach to resistance is significant – if SMX trades above $3.87, technical based buying could kick in, pushing the stock higher whether or not there is a bid in the offing.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC