– Shanghai stocks were up solidly yesterday after the announcement that the long-awaited tie-up between it and the Hong Kong exchange would start next week. Key is that the connection is likely to open up Shanghai to further fund flows and likely push shares higher in the weeks and months ahead as investors previously unable to access Shanghai can now buy shares on the exchange.
– In the end the composite index rose 2.31% to 2,474 and there is every chance now that if it can break this 3-year high, it will run all the way to 3,000 on a purely technical basis. I’d probably take that trade. Another potential benefit to traders is the inflation data in China yesterday painting a picture of a slowing economy in need of stimulus, which is likely coming. Elsewhere, the Hang Seng rose a more subdued 0.83% while the Nikkei in Tokyo was under pressure from the stronger yen as analysts bet that maybe a reversal is in the offing. At the close the Nikkei was down 0.59%.
– The positive tone in Asia fed into European and US trade with investors seemingly focused on earnings, the ECB and the strength of the US economy. With 10 minutes to go before the close, the Dow is up 31 to 17,605 for a gain of 0.18%. The Nasdaq is up 0.33% to 4,648 and the S&P 500 is 5 points or 0.25% higher at 2,037 – another record.
– In Europe, the focus is when the ECB will start to buy asset-backed securities to get things moving and at the close it was a sea of green across Europe’s bourses. The FTSE rose 0.67% to 6,611, the DAX rose 0.65% to 9,352 and the CAC was 0.79% higher to 4,223. In Madrid, traders didn’t care about the Catalonian referendum, which overwhelmingly saw the Catalans vote for their own nation, and the IBEX 35 was up 1.45% while in Madrid stocks rose 0.86%.
– Locally, overnight on the ASX, futures traders took the market up 14 points after yesterday’s fall of 0.45% on the physical. At 7.40am the SPI 200 Dec contract is at 5,554 bid and a long way from last month’s lows.
– On Bond markets, maybe traders are getting a conviction that stocks are right. It’s hard to tell but US 10s rose 5 points to a still low 2.35% but in a direction that is consistent with the stock market move. In the UK, 10s were a point higher to 2.21% and in Germany, a 2-point rise left them at 0.8%.
– On Currency markets, the US dollar got its mojo back a little with the Aussie, euro, yen, sterling and gold all lower. Euro sits this morning at 1.2422, GBP is at 1.5850, the yen is at 114.88 and gold is back below $1,150 an ounce. The Aussie dollar has dipped back toward 0.86 cents this morning at 0.8614. Traders will be eyeing the NAB Business Survey this morning as a guide to the health of the economy and as such, the Aussie dollar’s future direction.
– On Commodity markets, news that OPEC won’t be cutting supply anytime soon and the US dollar’s strength knocked Nymex crude for November down $1.40 to $77.25 a barrel. Copper dipped back to $3.015 a pound while iron ore for December delivery fell 29 cents a tonne to $75.54. Newcastle coal for the same date rose a stunning $1.05 to $63.10.
On the data front today, I can’t overstate the importance of the NAB Business Survey as a lead to the Australian economy. If there was only one piece of data I was allowed to look at each month on the economy, it would be this survey. House prices are also out and Chinese New Loan data has been rescheduled till today. In Japan, it’s consumer confidence, eco survey watchers and machines tool orders are out. It’s Armistice, Remembrance and Veterans Day in Europe and the US tonight but we still get the NFIB business optimism index along with the Redbook index.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Last week, UGL announced it had finalised the sale of its property management division. Unfortunately for shareholders, it also announced that it’s likely to have to make provisions for cost overruns in the Icsthys Power project in the Northern Territory. Based on the provisions made by its US partner in this project, this could be a significant hit for UGL’s profit this year.
From a chart point of view, this news saw UGL break the support of a potential falling wedge formation. False breaks on the third test of support are not uncommon in this situation so from here, a rally back into the body of the pattern might be encouraging. The opposite applies though – further weakness would be a worry.
One thing to keep in mind with this stock is that there is a capital return of $3 per share currently scheduled for November 27, meaning prices or charts will need to be adjusted.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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