Good morning. Here’s what happened so far.
– Stocks, oil, copper, the US and Aussie dollars all found support on Friday night as the position squaring in the wake of the SNB to abandon the EURCHF peg reverberated around markets. This reversed recent trends which had been in force while the 10-year high in US consumer confidence crunched US 10-year bonds rates up 14 points to 1.84%.
– In the end it was still a down week for US stocks, with the S&P 500 down 1.26% over the five days having bounced off my support zone at 1,990 twice during the week. Likewise, even though US 10s were weaker on Friday, they were still down 14 points on the week. But that’s mid-range for the week with the low of 1.70% Thursday, a long way away.
– Ladies and gentlemen, I give you 2015, the year that volatility bit back. And it’s only January 19! Obviously I’ve been banging the drum for a while now about a looming uptick in market volatility which looks set to ramp up in 2015. So it’s worth noting that Swiss hedge fund manager Felix Zulauf has said that 2015 “will be a trader’s dream, but an investor’s hell.” Only good traders, I’d suggest – poor or inexperienced traders will get killed.
– Anyway, at the close, the scoreboard in the US reads:
- Dow Jones up 1.1%, 191 points to 17,512
- Nasdaq up 1.38%, 63 points to 4,634
- S&P up 1.32%, 26 points to 2,019
– European markets were higher again. QE (and lots of it) seems to be coming, and the EU CPI print of -0.2% year on year after a fall of -0.1% in December is just another reminded deflation is taking hold in the Euro zone.
At the close:
- London(FTSE 100) up 0.79%, 51 points to 6,550
- Frankfurt (DAX) up 1.35%, 135 points to 10,168
- Paris (CAC) up 1.31%, 57 points to 4,380
- Milan (FTSEMIB) up 2.18%, 410 points to 19,255
- Madrid (IBEX) up 0.57%, 57 points to 10,039
– Locally the ASX was down 32 points for a loss of 0.6% on Friday closing at 5,299. But Friday night’s trade was far more positive with the SPI 200 March futures up 76 points – approximately 1.2% – to 5,307 bid (futures terms). With the US out for Martin Luther King holiday tonight, Australian stocks get 36 hours of clear air which could be very beneficial in terms of positive price action.
– In Asia Friday, USDJPY reversed course but rose all the way back to 117.50. That didn’t help the Nikkei, which fell 1.43%, 245 points to 16,864, but Nikkei futures on the CME are up 270 points for the March contract to 17,070 bid. The Hang Seng finished down 1.01% to 24,104. Stocks in Shanghai continue to march to the beat of their own drum, rising 1.19% to 3,376 Friday before rallying again in Futures trade. Perhaps the 4.3% fall in Chinese house prices, realised yesterday, might slow recent strength in Shanghai, which is up 8.6% over the past month. Then again, the force of this rally remains strong as traders buy every dip.
– On rates markets, as discussed above, US rates rose sharply as position squaring and strong consumer confidence combined to leave 10s at 1.84%. German Bunds closed at 0.41% while UK 10s closed at 1.54%.
– On currency markets, the big news is the SNB and expectations of a massive ECB QE announcement this Thursday. Euro was absolutely poleaxed on Friday night, down to a 1.1450ish low on expectations of a big announcement this week. It is also clear now that much of the euro buying over the past couple of years has been from the SNB. USDCHF finished at 0.8572.
Elsewhere, the Aussie received some support but hasn’t rallied yet, although Westpac’s New Zealand based strategist Imre Speizer wrote in a note over the weekend that “positive near-term momentum remains intact” and he is “targeting 0.8295 during the days ahead”.
– On commodity markets, oil rallied 4.67% o $48.91 a barrel, copper rose almost 8 cents to $2.63 a pound and gold ripped higher, up and through important resistance to close at $1,280. Gold could head toward the $1,340 region now on a technical basis. March iron ore dipped 23 cents to $67.40 a tonne while Newcastle coal for the same month closed unchanged at $56.20 a tonne.
– On the data front today, in Australia we get the TD inflation monthly data and new motor vehicle sales. Japan sees the release of industrial production and consumer confidence while in the EU the current account is out. Tomorrow is huge though, with the release of the Q4 Chinese GDP.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
It’s been a good week for Newcrest’s shareholders with the stock up 18% over the past 2 weeks. Today looks like being another good one with gold up 1.4% on Friday
Gold appears to have a number of things going for it at the moment including:
- Flight to safety from the Russian economy which has been hit by the oil price
- Concerns in some quarters about the risk to financial markets of the unforeseen consequences of Central Bank policies – Swiss Franc episode
- Renewed concerns about the fragility of the Eurozone
- Likely Quantitative Easing by the European Central Bank. This will push investment into risk assets like commodities. Gold looks a relatively attractive candidate compared to many of the industrial commodities which are plagued by oversupply.
Technical traders who are enjoying the ride in Newcrest will be thinking about how far this run might extend.
- One possibility is that there is an AB=CD uptrend underway as outlined on the chart below. In this scenario CD will be about the same size as the AB swing which would take us to around $14
- Another possibility is that CD will be 127% of AB. This is a common Fibonacci extension and coincides with the 38.2% Fibonacci retracement level around $15.75.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC