– Global stock markets rallied overnight. European bourses hit new 7-year highs in many places after Greece repaid EUR 450 million to the IMF. In the US, it’s a bit more difficult to put your finger on the why of the rally. Some reports this morning that the Minutes to the FOMC suggest a more patient Fed. But if that’s the case then the Forex market (see below) has the wrong end of that stick. Elsewhere, the lower than expected jobless claims last week and the fact that the four-week moving average of jobless claims, which dipped to the lowest level since 2000, could have been the catalyst for some of the ebullience. Whatever the reason, stocks just keep keeping on.
– The most interesting stock market action though remains in China. Yesterday the rotation away from the hysterically priced Shanghai exchange to the “relatively cheaper” Hong Kong stock exchange continued. The Hang Seng finished the day up 2.7% at 26,944 but it had been up around 4% at one stage earlier. In Shanghai there was a big reversal after the Shanghai composite traded well through 4000 before the sellers entered the fray, with the index closing down 0.91% at 3,958. The price action in both markets is nothing but manic.
– Turning to Forex markets and unlike the stocks, the FOMC Minutes have had a huge impact on the euro and the US dollar more broadly. I’d argue the technical break in the euro was important in sentiment as well but by reinforcing that June is still live in some member’s minds, and then to have had that reinforced by Bill Dudely, as we highlighted yesterday, has really boosted the US dollar. Richard Cochinos, head of America’s G10 FX strategy at Citi in New York told Reuters that there are two things driving the euro lower. “One, the impact of QE (quantitative easing) on the rate differentials and respective rates markets, so you do have capital outflows through the fixed income channel. But then you do also have tail-risk on Greece and it remains quite serious the closer you get to the end of April.” Yep – spot on, and even though Greece made the first and biggest of its repayments last night to the IMF it remains top of mind for forex traders.
– But while the euro and sterling are down 1% against the US dollar the Aussie and Kiwi dollars have managed to rally over the past 24 hours. Only slightly mind you, but rally nonetheless. What that highlights, as Richard Cochinos points out above, is that yield is still a very important driver of FX rates and capital flows.
Here’s the overnight scoreboard (6.47 am AET):
- Dow Jones up 0.31% to 17,958
- Nasdaq up 0.48% to 4,974
- S&P 500 up 0.45% to 2,091
- London (FTSE 100) up 1.12% to 7,015
- Frankfurt (DAX) up 1.08% to 12,166
- Paris (CAC) up 1.4% to 5,208
- Tokyo (Nikkei) up 0.75% to 19,937
- Shanghai (composite) down 0.91% to 3958
- Hong Kong (Hang Seng) up an amazing 2.7% (after 3.8% the day before) to 26,944
- ASX Futures (SPI June) up 17 to 5,952
- AUDUSD: 0.7689
- EURUSD: 1.0656
- USDJPY: 120.157
- GBPUSD: 1.4707
- USDCAD: 1.2584
- Crude: $50.77
- Gold: $1,194
– After losing half a per cent yesterday, perhaps the rally in the US and Europe will help the ASX 200 head north today as the futures suggest. The market is wary of topside resistance at 6,000 however and has at least three times recently rejected this, or near levels. It’s a cracking technical set up for those traders who trade the index.
– At least bond traders and forex traders are moving in the same direction. US 10-year bonds rose 5 points to 1.96% while German 10-year bunds remained at 0.16% and UK 10s dipped a pip to 1.60%.
– On commodity markets, early strength in Brent and Nymex crude was reversed by the stronger US dollar. That meant Nymex crude is at $50.71 after an early high of $52.07 – that’s some rebuttal. Gold is at $1194, copper seems becalmed in the mid-$270’s settling at $2.7435. On the bulks, Dalian September iron ore fell 2.36% to 373! While June Newcastle coal is up $1.25 to $53.30.
– Australia gets home loan data today. But the big event is the release of the Chinese CPI at 11.30am our time. UK manufacturing data is out tonight as is Canadian employment and US export prices.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day:
Divergence between Westpac’s price chart and the MACD indicator shown under the chart sounds a bit of a warning for potential buyers at the moment.
If the price chart completes a trend peak around these levels or not far above in the next few days it will confirm a divergence pattern between higher peaks in price and lower peaks in the momentum indicator. This situation might provide buyers with potential to pick off cheaper prices. This might be around the $38.60/80 support if price just drifts around for a while. However, if this support is clearly broken, a full blown correction would be in prospect.
Ric Spooner, chief market analyst, CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC