Good morning. And an interesting one it is, too.
– Traders will watch Canberra more than usual today as we all await the result of the spill motion. The result won’t really impact Australian markets in a material way immediately. But, if the result is likely to boost consumer and business confidence, then it might be the tonic the RBA is looking for and could help the Aussie dollar and Aussie bond yields move higher.
– On Friday night however, the big news was that fears that the global economic malaise would drag down the US economy have been forestalled. At least that is the feeling after the January non-farm payrolls printed 257,000 (234,000 expected with an upward revision to December). That’s solid! The unemployment rate sits at 5.7%, up 0.1%, with the participation rate lifting to 62.9%. Average hourly earnings rose 0.5% against 0.3% expectations for January.
– The impact was that bond bulls were absolutely creamed in the US with the 10-year Treasuries up 16 points to 1.96%. That is a massive capital loss at such low rates. The FOMC’s reliance on the word “patience” is now in question at the next meeting in March. The other big impact was the solid rise in the US dollar, which drove euro back to 1.13 and reversed recent strength in the pound and the yen. The Aussie dollar did relatively better and is clinging just below 78 cents.
– Also big news over the weekend was the Chinese trade data which was in no uncertain terms a shocker. Both exports (-3.3%) and imports (-19.9%) were lower with the import data suggesting the Chinese economic flat patch is worsening. Indeed, this is the biggest fall in imports since the depths of the GFC in 2009. The net of the flows was that China posted a record trade surplus of $60 billion. This is a big swing from what the market expected, which was for exports to grow 6.3% with imports down 3%.
– Anyway, at the end of play it was fear of the Fed and its tightening cycle, rather than confidence in the US recovery which, along with lingering – growing – worries over Greece left stocks marginally in the red.
– At the close, the scoreboard in the US reads
- Dow Jones down 0.34%, 61 points to 17,824
- Nasdaq down 0.44%, 21 points to 4,744
- S&P down 0.36%, 8 points to 2,055
– European markets finished mostly lower. But one thing to watch this week is the machinations of the Greece-EU face-off with the new PM. A speech Sunday signalled things were far from settled and the risk of Grexit remain high.
At the close:
- London(FTSE 100) down 0.19%, 13 points to 6,853
- Frankfurt (DAX) down 0.54%, 59 points to 10,846
- Paris (CAC) 0.26% lower, 12 points to 4,691
- Milan (FTSEMIB) off 0.28%, 58 points to 20,761
- Madrid (IBEX) up 0.36%, 38 points to 10,573
– Locally, the ASX SPI 200 futures for March were up 6 points when they closed Saturday morning. But the Chinese data might weigh today.
– On bonds, it was carnage in the US as noted above, with rates off across the board. Other markets were far more settled with German 10s up 1 point to 0.34% while in the UK, 10s closed at 1.65%.
– On currency markets, the US dollar was stronger. But, as the NAB’s co-head of FX Strategy wrote this morning, the “surprise” in Friday’s non-farm payrolls was that the USD closed below its 2015 highs in USD index terms. That, Attrill says, “strengthens our conviction that while we remain constructive on the dollar, we should not be raging bulls”. Having said that though, early Asian trade in Sydney this morning has the US dollar strengthening again with the euro at 1.1288, GBP at 1.5211, USDJPY at 119.11 and the Aussie dollar at 0.7758.
– On commodity markets, US strength has pushed gold sharply lower and it’s back at $1,233 this morning, off $30 an ounce. Crude rallied again up 3.68% to $52.34 while copper dipped a smidge to $2.589. On the bulks, March iron ore rose 60 cents to $62.23 a tonne while Newcastle coal for the same month rose 85 cents to $64.95.
On the data front, RBA governor Glenn Stevens speaks today and the ANZ will release job ads. German trade is out tonight.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Virgin’s share price jumped on Friday after it reported a December quarter profit of $55.3m before tax. Like Qantas it’s benefitting as the heat comes out of the domestic market capacity war. Cheaper oil prices aren’t doing any harm either.
However, from a chart point of view, if Friday’s high turn s out to be a peak, it will be a text book result. The October to January rally looks like a classic 5 swing advance. In that context, last week’s move below the peak at “3” looks like a sign of weakness. Friday’s rally then stopped at the 78.6% Fibonacci retracement level. If this level holds, the charting textbook will be looking for a deeper correction below 43c. A recovery in the oil price might be one catalyst for this development.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC