A quick recap: Whether it was end of quarter position squaring or the re-emergence of real buying, only time will tell. But last night saw a much more positive tone on global stock markets, with solid gains in Europe and the US.
The Dow put on more than 200 points, the S&P 500 rose 35 to be back solidly above 1,900 and the Nasdaq gained 100 points. Part of that rally is probably end of quarter squaring but the ADP employment report’s print of 200,000 was slightly better than expected and has raised hopes of another solid rise in non-farms when they are released on Friday.
European stocks rallied with car makers back in the black following solid bids and Glencore up another 14% in overnight trade. That’s left European bourses, both in the UK and on the continent, up more than 2%.
But it’s been a bad quarter for stocks and traders will be glad to see the back of it. CommSec’s chief economist Craig James said for the quarter “the Dow Jones fell by 7.6% while the S&P lost 6.9% and the Nasdaq fell by 7.4%.” He also noted that the overall FTSE Euro-first index dropped 9% in the September quarter.
The impact of the overnight moves in the US and Europe had already been front loaded in trade on the ASX yesterday with a solid 2% rise so the December SPI futures are hardly moved. But the quarterly performance from the local market saw the ASX 200 down around 8%. That’s two quarters of falls for the local market so traders will be hoping October brings a change of season.
Even though SPI traders weren’t overly excited by what happened offshore it could be a better day for the ASX today with Rio and BHP up strongly overnight in London and Copper bouncing 4%. Energy is also higher with Nymex crude up above $45 again. The strong gain in base metals generally should help the market today.
On Forex markets the Aussie is sitting back above 70 cents after seemingly running out of sellers back in the low 69 cent region again on Tuesday. The Canadian dollar is stronger too, with the Kiwi along for the ride. The Euro and Pound are down a little as the US dollar strengthened while the Yen is fairly calm. Bond markets were calm with US 10’s around 2.05% and Aussie 10’s at 2.60%.
On the data front today it is a huge day. We get AiGroup manufacturing PMI in Australia this morning but all eyes will be on the global releases. China, Japan and Korea are the big ones in our timezone and then we see releases all around the globe tonight. Also out today in Japan is the Tankan report, while in the US we get the grand daddy of PMI’s with the release of the ISM. We also get jobless claims, vehicle sales and a speech by San Fran Fed president Williams.
One thing to note, even though data is out today, China begins its National Day holiday week today (markets are closed through next Thursday, as is Hong Kong today).
The overnight scoreboard (7.12am AEST):
- Dow Jones Industrials +1.47% to 16,284
- Nasdaq Composite +2.28% to 4,620
- S&P 500 +1.91% to 1,920
- London (FTSE 100) +2.58% to 6,061
- Frankfurt (DAX) +2.22% to 9,660
- Tokyo (Nikkei) +2.7% to 17,388
- Shanghai (composite) +0.5% to 3,053
- Hong Kong (Hang Seng) +1.41% to 20,846
- ASX Futures overnight (SPI December) -1 to 5,002
- AUDUSD: 0.7011
- EURUSD: 1.1176
- USDJPY: 119.85
- GBPUSD: 1.5127
- USDCAD: 1.3313
- Nymex Crude (front contract): $45.36
- Copper (US front contract): $2.34
- Gold: $1,114
- Dalian Iron Ore (January): 366(denominated in CNY)
- US 10 year bond rate: 2.04%
- Australian 10 year bond rate: 2..61%
Now the news. The IMF downgraded global growth expectations last night with managing director Christine Lagarde saying she is “concerned about the state of global affairs.” She’s worried about global warming, El Nino, the Syrian war and the refugee crisis it has spawned and she’s also concerned about the global economy.
“The prospect of rising interest rates in the United States and China’s slowdown are contributing to uncertainty and higher market volatility. There has been a sharp deceleration in the growth of global trade. And the rapid drop in commodity prices is posing problems for resource-based economies,” she said.
“Our World Economic Outlook numbers will be released next week, but I can already tell you this: global growth will likely be weaker this year than last, with only a modest acceleration expected in 2016.
The good news is that we are seeing a modest pickup in advanced economies. The moderate recovery is strengthening in the Euro Area; Japan is returning to positive growth; and activity remains robust in the US and the UK as well.
The not-so-good news is that emerging economies are likely to see their fifth consecutive year of declining rates of growth.”
The IMF also released its report card for Australia. It’s a tale of risks, lots of them — housing, China, the economic transition and bank capital. I’ve covered the releases here.
– We had a huge fall on Tuesday but we’ve seen a decent recovery in Australia, Europe, Japan and the US since. Traders will be wondering if that means the bad news is priced in and whether they can put a terrible quarter of trade behind them. Yesterday David Scutt noted that here in Australia, “Despite the late fireworks, it’s was a quarter to forget for investors. The benchmark ASX 200 index fell 8.01% following a 7.34% decline in the three months to June, the first back-to-back drop since 2011 and the largest quarterly decline since the September quarter 2011. Understandably given its woes over the past two quarters, year to date the index is now down 7.19%.” He also offered this chart which shows just how tough a time the market has had.
Two really bad quarters in a row is a trend worth noting.
But from a trading perspective the fact that the ASX, and pretty much every other global stock market, ended the month (and the quarter) above the lows of August, is a good sign. At least for the moment.
And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day
The State of Origin
Most stocks to watch are interesting from an investment point of view. Origin is not one of those stocks. Based on news yesterday, Origin is a stock to avoid. Despite previous assurances, Origin announced measures to cut debt by $5 billion, including a $2.5 billion capital raising and a major cut to capex.
A measure of the management failure this announcement represents is that the stock was already trading at nine year lows beforehand. It appears the board and management are the last to realise Origin’s difficulties. In essence, Origin bet that gas prices would hold at higher levels, and had no plan B. Now, it has little choice but to beggar investors for more funds.
Admittedly, a share price that is 60%+ lower attracts attention. However, the recent experiences of Myer shareholders are a cautionary tale for those holding Origin. It’s difficult to see how many members of the current membership team could possibly keep their jobs. This sort of strategic failure demands C-suite change – and investors may be well advised to shun Origin until this occurs.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC