– Another interesting night on markets with the Euro punching up and through 1.12, the Aussie assailed by reports that the RBA will cut next Tuesday, and German Bunds continuing to sell off. On stocks, US markets were lower again and the moves in Bunds and stocks feel ominous. European stocks rallied, copper surged 10 cents, crude is ready to crack $60 and gold was hammered.
– Key for me at the moment — and something traders have to watch — is the German Bund market which sold off again overnight. It’s a dangerous move which could really destabilise broader markets. Of course the move on the 10 year Bund from 0.16% a couple of days ago to 0.37% today is hardly a big move in actual yield terms. But in terms of a capital move it is massive and lots of money will be lost by Bunds holders. This could trigger asset allocation shifts in time — particularly if the current selloff extends too much further. It feels to me like some large part of the massive Bund rally has been induced by fear of Grexit which appears to be receding as Greece is signalling concessions with lenders. That means the Bund selloff might have legs.
– On the data front, just one day after an appalling GDP print in the US the data looked a lot healthier with jobless claims of 262,000 hitting a 15 year low. Akin Oyedele from BI NYC reports “the employment cost index, or ECI, climbed by 0.7% in Q1, a pace that was a bit stronger than the 0.6% rate expected by economists. This represents a 2.6% gain from a year ago, a big jump from the 2.2% gain last quarter. And these two data points on the labour market show we might be at full employment.” That tells me the Fed is definitely going to hike this year. Employment outcomes like these are not consistent with 0% interest rates. That’s a risk for stocks.
– Speaking of stocks… the Dow, Nasdaq and S&P are all lower overnight with the Dow down just shy of 200 points. It could have been the end of the month, given that European stocks did so much better, but it does feel related to the move in interest rates and the Fed. I’m watching closely because it feels a little like 1987.
Here’s the overnight scoreboard (7.24am AEST):
- Dow Jones down 1.08% to 17,840
- Nasdaq down 1.64% to 4,941
- S&P 500 down 1.01% to 2,085
- London (FTSE 100) up 0.21% to 6,960
- Frankfurt (DAX) up 0.19% to 11,454
- Paris (CAC) up 0.14% to 5,046
- Tokyo (Nikkei) down 2.69% to 19,520
- Shanghai (composite) down 0.76% to 4,442
- Hong Kong (Hang Seng) down 0.51% to 4,749
- ASX Futures (SPI June) 5,753
- AUDUSD: 0.7897
- EURUSD: 1.1217
- USDJPY: 119.41
- GBPUSD: 1.5347
- USDCAD: 1.2066
- Crude: $59.69
- Gold: $1,183
– The local market came under pressure again yesterday and has hit the bottom of this year’s trading range with the move in futures overnight. It is looking very wobbly and a break of 5,730 could open up another 300-point fall based on a pure technical appraisal. 6,000 proved too difficult to break topside and support at this level may prove solid. But risk seems to be rising.
– In Asia yesterday the Japanese market was hammered after the BoJ left policy unchanged. That’s a bit surprising — the sell off not the policy move. Not so much because policy was unchanged but that its maintenance proved the catalyst to such a big fall. Something is up in stocks at the moment around the world, this is just another example.
– On commodity markets it’s interesting that gold was hammered when crude is rallying and stocks in the US are lower. That doesn’t feel right. In such conditions it should really be higher. It’s trading in a sideways range for the moment but, according to the the technicians, the next dip under $1,178 — if one comes — will knock it substantially lower. Watch this space.
– On the data front today there are holidays in China and much of Europe for May Day. That doesn’t mean we won’t get PMI data out of China with NBS data due, while in Japan we get CPI data. Here at home we get AiGroup PMI and ABS PPI and tonight ISM numbers from the US.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day:
In a negative day for the broader market, Qantas had a good bounce off chart support yesterday.
The trigger for this was release of its March traffic report. The market was pleased by ongoing improvement in international demand assisted by the Cricket World Cup and China’s Lunar New Year holiday. Domestic travel remains soft but Qantas’s revenue per seat kilometre is still showing good improvement due to the revised strategic direction of reducing domestic capacity.
The trend channel on the chart below has done a good job of identifying the end of downward corrections and potential buy points for Qantas this year. At the moment this support line has other things going for it as well. There is and ab=cd level at yesterday’s low and the potential support of the mid-March peak shown by the dashed horizontal line is basically at the same level.
Yesterday’s solid bounce off this level looks like a rejection of this support, potentially setting up for another test of the channel resistance. A clear move below the dashed support line would start to look like a failure of this scenario and could be the place for short term traders to position stop losses.
Ric Spooner, chief market analyst, CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC