Good morning and welcome to Thursday. Here’s what’s happened so far.
– Wow, what a night if you were long German bonds. There is an old line I used to use when I was wandering the world talking to global investors for the banks about the markets. It went something like: “There is nothing fixed about fixed interest.” And that’s exactly what we have seen in the German 10-year bond market in the past few days which have increased from 0.915% at one point a couple of days ago to a high of 1.07% overnight.
– That is a move in capital price of 17.5%, according to Westpac’s Graeme Jarvis in his morning note. Jarvis says that this type of price action is “freakish” but highlights that after gapping all the way to 1.07%, prices closed back at 1%. That’s really ugly price action and will have scarred traders in German bond pits.
– No such scarring in US equities though, which continued their rally after a two-day hiatus. The Dow was up 55 points to 17,069 for a gain of 0.32%. The Nasdaq rose 0.76% to 4,587. Tech companies Apple and Twitter did well, gaining 3% and 5% respectively. On the broader market, the S&P 500 was up 8 points to 1,996 for a gain of 0.38%.
– In Europe, stocks weren’t doing too well as Europe tried to catch up with the previous day’s fall in the US. These moves were reversed once the US market started marching forward. At the close, the FTSE was unchanged at 6,830, the DAX recovered to be down just 0.11% to 9,700 and the CAC was becalmed by the close of play to 4,451. Stocks in Milan and Madrid were similarly quiet by the end of the day after early falls.
– Locally, the good news for longs is that the moves overnight rescued the ASX from yesterday’s weakness, with the SPI 200 September contract up 18 points to 5,594 while the December contract rose 23 to 5,593.
– In Asia yesterday, Shanghai dipped 0.37% to 2,318 as traders digested recent strong gains. The Hang Seng had one of its worst days in six months yesterday, closing 1.93% lower to 24,705. No doubt it will – or should – recover somewhat today. The Nikkei continues to benefit from a weak yen, up 0.25% to 15,789.
– As discussed above, bonds had an interesting night. US 10s moved up another 3 points to 2.54%, Italian bonds continued their sell-off, up 3 points to 2.41% and Spanish bonds lost 3.22% of capital price, rising 7 points to 2.27%. Gilts rose 2 points to 2.37%.
– On Currency markets, the Aussie found support at 0.9110 and is back at 0.9158 as the market awaits an expected solid employment report. Euro sits at 1.2918, sterling at 1.6203 and USDJPY is closing in on the 107 region.
– On Commodity markets, Iron Ore fell 14 cents for the September contract to $83.56 but October, November and December contracts rallied an average of 50 cents. Newcastle Coal rose marginally for September delivery to $66.20 a tonne. Crude dipped another 1.11% to $91.72 a barrel – that has to be good news at the bowser. Gold is just below $1,250 an ounce and Silver has dipped back below $19 an ounce. Copper closed at $3.11 a pound and on the Ags, Wheat fell 1.33%, Corn rose 0.52% and Soybeans dipped 1.11%.
On the data front, today’s employment report for Australia at 11.30am is going to be a huge risk event for Aussie dollar traders, so watch out. The market is looking for an increase of 15,000 and a drop in unemployment to 6.3%. Chinese CPI is out as well, which will be important along with new loans. German CPI tonight will hold a little less interest and in the US we get jobless claims.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Coca Cola Amatil
CCL is in the news this morning after settling a wage agreement with warehouse staff. Existing staff will have their pay rates frozen while new workers will be on 38% less.
Shareholders are likely to see this as a welcome step in the direction of cost control. Even so, on a multiple of around 17 times next year’s earnings, CCL doesn’t seem especially cheap for a stock with moderate growth prospects and some new business initiatives that carry a fair degree of risk.
Potential sellers might find the triangle in CCL’s chart useful. Another rally to, and rejection of, the resistance line might provide an opportunity to sell at higher prices. In the meantime though, a break below the triangle support would be a sign that the downtrend is set to resume and that those hoping for a corrective rally might be disappointed.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC