– The massive rise in non-farm payrolls in the US saw US stocks sell off from the get-go as the Dow lost 279 points. While UK stocks were dragged lower nothing could spoil the QE party for the German DAX or French CAC. Australian stock traders were not so resilient however with the June SPI 200 contract down 58 points. On currency markets, the euro hit its lowest level in 12 years and the Aussie was knocked back to the low 77s while gold and oil also fell heavily.
– Key to the big move in the US dollar, and the US stock weakness, was that the 295,000 rise in jobs beat expectations by 55,000. That brings the 3-month average job growth to a stellar 288,000. Separately the unemployment rate has fallen to 5.5% which is below the top of the Fed’s “full employment” range. According to BNP Paribas economists, “this is a significant move that will put pressure on the Committee to lay the groundwork for higher rates soon”. While the next meeting on March 17 and 18 is too soon to be “soon” the strength means there is a high possibility that the Fed drops the “patience” language.
– Will it be April or the June initially expected by markets or possibly the September that BoA Merrill Lynch has been forecasting? Time will tell but Janet Yellen signaled in her recent addresses to the House and Senate Banking Committees that she is more focused on labour market strength than other partial indicators of weakness since the start of 2015. If fear takes hold this week, watch out.
– On that basis I’ll rehash a chart I used in my Australian diary as the most important chart in the world. US 2- and 5-year treasuries are rising but it’s the 10s that bear watching as they move up toward important resistance. If 2.4% gives way it won’t only impact bonds but currencies, commodities and stocks as well. Urbane to the potential that this level is at least tested and possibly breaks, John Craig from Bell Potter told Business Insider this morning that: “The June meeting remains the likely start to the impending tightening cycle, although markets have not yet fully priced in a hike for that meeting.”
– Here’s the overnight global stock market scoreboard:
- Dow Jones down 279 points, 1.54% to 17,857
- Nasdaq down 1.12%, 56 points to 4,927
- S&P down 1.43%, 30 points to 2,071
- London(FTSE 100) down 0.71%, 49 points to 6,912
- Frankfurt (DAX) up 0.41%, to 11,551
- Paris (CAC) up 0.01% to 4,964
- Tokyo(Nikkei) up 1.17% to 18,971
- Shanghai (Composite) down 7 points, 0.23% to 3,241
- Hong Kong (Hang Seng) down 0.12% to 24,164
- ASX Futures (SPI June) down 58 points to 5,823
– In Asia Friday, the Nikkei bounced strongly because the yen is again weakening against the US dollar. Many believe this is all that’s required to lift the recovering Japanese economy to the next level. Certainly it does make Japanese exporters more competitive. So the high at 121.29 will excite the stock market bulls. But, US equity weakness is a double negative for the Nikkei both because of the downward pressure it places on global stocks (Nikkei futures fell 100 points Friday) but also because stock weakness puts downward pressure on USDJPY, which is still a natural safe haven in times of trouble. Liquidity pressure and the growth downgrade still seems to be worrying traders in Shanghai, which ended the week down 2.09%. Data over the weekend showed that China’s trade surplus rose from US$60.03bn to $60.6bn in February. “Exports were up 48.3% on the year; Imports fell by 20.5%,” Commsec’s Craig James reports.
– On rates markets, US and UK rates were sharply higher over the week as traders bet both the BoE and the Fed are moving closer to a rate hike. US 10s finished the week at 2.25% while in the UK, Gilts climbed 21 points on the week to end at 1.98%. German rates finished at 0.35%.
– As noted above, the US dollar surged on Friday night. Euro, sterling, yen, the Aussie, Loonie and Kiwi were all lower as a result. Indications this morning are that the euro is sitting at 1.0833, sterling is at 1.5041 and USDJPY at 120.85. The commodity bloc are lower as well with the Loonie (Canadian dollar) at 1.2620, and the Kiwi at 0.7362. The Aussie dollar has dipped below support at 0.7733 and is now less than a cent above the January low.
– On commodity markets, a stronger US dollar is usually a signal for lower commodity prices (all other things equal) because most commodity markets are denominated in US dollars. Nymex crude fell 1.93%to $49.78, gold crashed $28 an ounce to $1,168 and copper dropped 1.43% to $2.6145. On the bulks, prices were also lower with June Coal down $1.15 a tonne to $59.65. Iron ore was also lower with June closing $1.65 lower at $56.79.
– On the data front today, it’s the Moomba holiday in Melbourne but that won’t stop the release of ANZ job ads. In Japan Q4, GDP is out and tonight we see the release of German GDP. After Friday’s data, Fed Minneapolis president Narayana Kocherlakota’s speech will be important tonight.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Chart traders got a good sell signal in advance of the heavy sell off in gold when Newcrest completed a double top formation on Friday. This happened when it closed below the support between the two double tops.
With gold and the Eurodollar under heavy pressure as markets positions for higher US interest rates, a decent correction for Newcrest looks a distinct possibility. The fact that the double top was completed at a time when the market is significantly overbought lends weight to this possibility.
So what do the charts have to say about potential support levels? First cab off the rank might be around $12.30. This represents the 38.2% Fibonacci retracement. At that price the move after the double top break would also be the same size as the height of the double top itself. Other candidates are the 200 day moving average (green line) around $11 and a return to test the neck line of the head and shoulder pattern down around $8.50. This sort of level would presumably require a significantly lower gold price and a market view that it was going to stay low for a considerable time.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC