– The carnage on the Shanghai stock exchange yesterday, which drove stock prices down 7.7%, didn’t derail European ebullience about the looming prospect of a massive ECB QE program this week so we enter Tuesday with a generally positive stock market mood.
– Locally however the fall in crude oil and copper overnight along with a dip in iron ore see the SPI 200 futures contract for March down 5 points at 5,257 bid after what can only be characterised as a terribly disappointing performance on the physical market yesterday which only rose 0.2%, 9.9 points, nowhere near the 76 point gain futures had suggested.
– The US was out on Martin Luther King day which might help explain the lack of positivity from the ASX but there was plenty of news in Europe to keep traders edgy and in some cases excited. For excitement, at least among stock bulls, French President Francois Hollande essentially guaranteed QE this week when he jumped the gun and told the WSJ that it would happen on Thursday. But on the edgy side of the ledger the Danish central bank cut rates from -0.05% to -0.2% as a result of the SNB’s decision last week and pressure on the EURDKK rate. It’s not quite ‘beggar thy neighbour’ 1930’s style but the groundswell of nationalistic self interest seems to be growing. Stay tuned.
– Speaking of rate cuts and their efficacy Soc Gen has an interesting piece out which is probably one of the most interesting pieces of research I’ve read in a long while. Essentially what it sought to do was explain why lower oil, weaker currencies and low rates aren’t working. I’ve written it up and you can find it here – it’s worth a look.
Looking around the grounds European markets were higher again thanks to QE and Francois Hollande.
At the close:
- London(FTSE 100) up 0.55%, 36 points to 6,586
- Frankfurt (DAX) up 0.73%, 74 points to 1042
- Paris (CAC) up 0.35%, 15 points to 4,395
- Milan (FTSEMIB) up 1.18%, 226 points to 19,481
- Madrid (IBEX) up 1.19%,119 points to 10,158
– As noted above in Asia yesterday the tightening of regulations around three big brokers hit stocks hard with the brokers and the market coming under heavy selling pressure. A huge hat tip to TD Securities Macro Strategist Prashant Newnaha who just last week highlighted the lack of new account openings as a reason for the SHCOMP’s vulnerability. If he is right then the 7.7% loss to 3,116 has further to run. On the other hand however IG Markets Chief Market Strategist Chris Weston told Business Insider yesterday that, “this is not the start of a longer-term reversal in my opinion, just an opportunity to buy at more compelling levels.”
Elsewhere in Asia the Nikkei shook off the Shanghai exchange’s woes rising 0.89% to 17,014 but the Hang Seng was dragged lower down 1.52% to 23,738.
– Today is a huge day for Asian markets with the release of Chinese Q4 GDP. The market is looking for a quarterly outcome of 1.7% growth taking the year on year growth rate to 7.2%. Interestingly Craig James reported in his note this morning that one of the reasons that oil was down last night was a Reuters story quoting “Chinese Premier Li Keqiang as saying on state radio that the economy faces significant downward pressure this year.” Is that a hint at lower growth?
– On currency markets the yen lost the ground it gained in Asia once it became clear there was no contagion from the Shanghai fallout and industrial production (-3.7% yoy in November) printed so much worse than expectations and last months outturn of -0.8% yoy. The Aussie drifted a little lower to 0.82089 while the Euro has lifted back above 1.16 to 1.16085. Is a counter-intuitive rally coming? Sterling remains under pressure at 1.5115.
– On commodity markets even though stocks and bonds were closed in the US Globex was open for futures trade. Crude fell 2.52% to $47.89, copper dipped 1.51% to $2.5775 but gold retains its safe haven bid at $1277.20. March coal rallied 50 cents to $56.70 a tonne while March iron ore fell 23 cents to $67.40.
On the data front nought matters but Chinese GDP in Asia today. Tonight we get German producer prices and the ZEW surveys for Germany and the EU but it’s China that matters most.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Fairfax Media Limited
Fairfax shares have had a good run since October being up 17.5% from their low. However, the rally faltered on 12 January when Fairfax announced its intention to buy the remaining 50% of MMPH, owner of digital property business reviewproperty.com.au.
For technical traders, this price pause means that FXJ has failed to get clear of its 200 day moving average and has also completed a double top pattern. It’s now come back to test the support from the top of the larger double bottom. If it gets below this, a full blown correction of the rally from late last year looks in prospect providing a chance to buy at better levels.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC