Good morning. Here’s what you missed:
– Stock markets dropped and interest rates rallied as a clear asset allocation trade took place as “risk” money was taken off the table.
– Had it not been a “risk” or asset allocation shift there is little chance that bonds would have rallied given the fact that the JOLTS (Job Openings and Labour Turnover) survey surged to 4.635 million in May, not dipped to 4.35 million as expected. That might have added some weight to stocks as the taper continues and the time to raise rates closes in.
– The key claim this morning is that stocks “are expensive” or have “gone too far” and while it seems to me that this is always the mantra at the start of earnings season, recently it is a meme worthy of note if it get legs. Indeed, last night one of Wall Street’s bulls Jeffrey Saut from Raymond James made a “call” for a pullback to begin “in mid-July or early August” of between 10-12%.
– At the close then, the Dow had lost 117 points or 0.69% to 16,907. The Nasdaq dropped 1.36% to 4,391 and the S&P 500 was 14 points or 0.69% lower to 1,964.
– In Europe, the FTSE was down 1.25% as industrial production missed by a mile, printing -1.3% against expectations of +0.4% in May. German trade data was a worry also both for Europe’s biggest economy and that of its neighbours, with both exports and imports down 1.1% and 3.4% respectively.
– So the DAX was down 1.34%, the CAC fell 1.42% and suggesting, once again, this was an asset allocation play was the fact that the periphery got smashed. Stocks in Milan were down 2.69% while stocks in Madrid dropped 1.83%.
– Understandably, futures traders on the ASX overnight have taken the SPI 200 September contract down 24 points to 5448 bid.
– In Asia yesterday, both the Nikkei and USDJPY fell, with stocks in Tokyo down 65 points or 0.43% to 15,314. They’ll be lower this morning on the open. Traders in Hong Kong left the Hang Seng unchanged while in Shanghai, stocks rose 0.20%. It is going to be a tough day for stocks and the region will be holding its breath to see what the Chinese CPI and PPI prints look like at 11.30am.
– Turning to bond markets and there is more evidence of risk allocation, with rallies in core markets like the US, Germany and UK but some selling pressure in Italian and Spanish bonds. US 10s closed at 2.56% for a gain of 5 points or a massive 2.07% capital gain for the bulls. Bunds fell 4 points to 1.22% and in the UK, the big IP miss drove rates on 10-year Gilts down 8 points to 2.65%.
– Locally on the SFE 3-year bond futures rallied 4 points to 97.36 (2.64%) while the 10s rallied 5.5 points to 96.475 (3.525%).
– Currency traders seemed to view a different set of data and market moves. While I can make sense of the Aussie’s rally back to 94 cents, euro’s push a little higher to 1.3611 and sterling’s rebound back to 1.7129 after the weak data is somewhat less easy to fathom. The US economy is looking better but the technicals for the dollar remain mixed and the bulls are absent.
– On Commodities, Iron Ore is trying to break out and closed last night at $96.67. Newcastle Coal dropped another 30 cents to $70.05 on the September contract.
– Nymex Crude closed at $103.48, Gold is at $1,316 and Silver is still clinging to $21 at $21.04 oz and Copper is unchanged at $3.25. On the Ags, Corn dipped a further 0.24%, Wheat was largely unchanged after yesterday’s move and Soybeans played catch-up, dropping 2.44%.
On the data front today, the Westpac-Melbourne Institute consumer confidence number is out at 10.30am and the market will be looking closely to see if there is a decent bounce. Then of course we have the Chinese data, Japanese machinery orders and a fairly light calender until the FOMC minutes tonight.
And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day
Reject Shop – Rejecting Lows
The Reject Shop appointed a new CEO yesterday. Ross Sudano’s background is in beer – specifically Little Creatures – meaning many traders like him already. Investors seemed to like the news as well. TRS shares rallied 2.4% after the announcement, a common response when troubled companies infuse their leadership with new blood.
TRS has one of the more interesting charts in the top 200 stocks (below). The gap in January followed a profit warning at the half-year results announcement. The stock has been under pressure since, culminating in a low of $8, compared to 2013 highs above $18. Yesterday’s announcement and subsequent rally bring TRS shares back to a key chart point.
The price is nudging the 6-month down trend line. The MACD has turned, and a combination of a widening MACD gap and a cross of the zero line indicate growing positive momentum. Today’s release of WBC’s Consumer Confidence Index could be the catalyst for higher prices for retailers. If a positive read lifts the sector, TRS may outperform as technical traders pile in.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC