A quick recap:
Another day, another sea of red ink across stock markets the world over. For the second day in a row the negativity in Asia filtered into European trade, while in the US the weakness of data and some serious trouble for the Walmart share price knocked the Dow almost 1% lower, dragging the S&P 500 and the Nasdaq into the red.
Walmart is buying back shares and investing heavily in the business — things you’d expect would help the share price. But it seems the strategy has left investors cold and the shares ended the day down 10%. But the warning on the economy, from CEO Doug McMillon, wouldn’t have helped. BI US reports that:
In an interview on CNBC, McMillon was asked to comment on the US economy.
He shrugged and said, “It’s steady. It’s OK.”
Add that to falling producer prices in September, -0.3% versus +0.1% expected, and retail sales that, well, whiffed (+0.1% versus +0.2%), and it paints a picture of a US economy losing momentum.
That’s how we’ve ended up with stocks in the US lower and European bourses closing on their lows with losses near or above 1% across most of the region.
Interestingly, after yesterday’s recovery off the lows, the December SPI 200 futures are largely unchanged this morning. That means the release of unemployment data at 11.30am AEST is going to be a huge event for the market. Banks will continue to be of interest, given the myriad of implications regarding Westpac’s move yesterday, while gold miners (at least the unhedged ones) might do okay today given the price of gold has broken resistance and rocketed higher overnight on the US dollar’s weakness.
Speaking of which, the US dollar move was brutal. The weak data really hurt it and there is a looming “death cross” on the US dollar index which suggests some heavy selling could be around the corner. The NAB’s co-head of currency strategy Ray Attrill said the “US dollar looks like remaining under pressure near term.” That’s because expectations of a Fed hike are receding further into 2016 and US 10’s are back under 2%.
The Aussie dollar’s rally resumed with an emphatic move higher overnight. The Aussie is up 0.83% and back above 73 cents this morning. That rally has been mirrored by the Canadian dollar, while the Kiwi has rocketed higher, up 2%, on the back of signs the RBNZ will only cut once more. The Euro and Yen are both materially stronger, while the Sterling is up close to 1.5%. Like the Aussie, buyers reversed course quickly after the previous night’s selling.
On commodity markets oil was fairly quiet for a change with the action centered on gold which has attracted a lot of buying and is up close to $20 an ounce this morning. Copper went up with the US dollar’s fall and is back above $2.42 a pound. Iron ore in Dalian was down a little overnight.
Today is a huge day for Australian data with the release of the September labour force data. Depending on who you ask the market is forecasting somewhere between 5000 and 10,000 new jobs with an unemployment rate either unchanged at 6.2% or a little higher at 6.3%. David Scutt has an excellent preview of everything you need to know about the jobs data here.
Offshore we are still waiting on China’s new loans and money supply data, and after yesterday’s PPI and CPI, more easing as well. Today in Japan it’s industrial production and then tonight we have jobless claims in the US, the Empire State Manufacturing Index, the Philly Fed index and speeches by the Fed’s Bullard, Dudley and Mester. Oil traders will be watching the EIA stock’s numbers as well.
The overnight scoreboard (6.42am ADST):
- Dow Jones Industrials -0.92% to 16,924
- Nasdaq Composite -0.29% to 4,782
- S&P 500 -0.47% to 1,994
- London (FTSE 100) -1.15% to 6,269
- Frankfurt (DAX) -1.17% to 9,915
- Tokyo (Nikkei) 17,891
- Shanghai (composite)-0.95% to 3,262
- Hong Kong (Hang Seng) -1.13% to 3,406
- ASX Futures overnight (SPI December) -1 to 5,174
- AUDUSD: 0.7302
- EURUSD: 1.1475
- USDJPY: 118.82
- GBPUSD: 1.5476
- USDCAD: 1.2936
- Nymex Crude (front contract): $46.29
- Copper (US front contract): $2.42
- Gold: $1,184
- Dalian Iron Ore (January): 373 (denominated in CNY)
- US 10 year bond rate: 2.97%
- Australian 10 year bond rate: 2.60%
– The Fed released its “Beige Book” last night which said the US economy is humming along. But the fact that it highlighted manufacturing was “generally weaker” knocked the US dollar for a six when it was released. Likewise, the other data was indicative of the economy slowing.
But even with the relatively weak price of oil my sense is that in the US, and China, the low PPI means aggregate demand in the economy is not overly strong and pricing power is absent. That said, it’s no surprise that our friends at Forexlive reported “The hatchets are being taken to US growth after soft data.”
Ryan Littlestone says:
- BAML cuts its Q3 GDP tracker to 1.3% from 1.7%
- BNP cut theirs to 2.3% from 2.5%
- Goldman Sachs cut theirs to 1.2% vs 1.5% prior
– The impact of this downgrading of growth expectations is, of course, that the US dollar is weaker and bond yields are rallying once again, with the 10 year at 1.97% and the 2 year US Treasury at 0.5527% — very close to the four month low of 0.5416%. That’s indicative of the repricing of Fed rate rise expectations which were so important to the US dollar’s recent strength.
– That’s important in it’s own right but it’s also important technically because the shifting fundamentals, and the weakness in the US dollar they have caused, means we now have a “death cross” on the US dollar index. That suggests further rallies for Euro, Yen, Sterling and even the Aussie, Kiwi and Canadian dollars. It also suggests less pressure on commodity prices, although I have to say “all other things equal.”
Here’s the chart:
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The attractive thing about Woodside is its conservative balance sheet which puts it in a position to make well timed acquisition at some point during the current commodity bear market. However, major takeovers in the energy market carry significant risk. Shareholders are inevitably going to have to assume a significant amount of environmental, operational or sovereign risk – let alone price risk. It’s what they get paid for.
With that in mind, today’s press reports that Woodside is considering increasing its offer for Oil Search may see a period of short term nervousness for the stock especially with the oil price again drifting lower.
The recent peak around $30.20 now forms potential support and will be a level to watch on this chart. A break below that would be a sign of weakness.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC