– Stocks in the US were essentially flat while European shares moved through a wide arc of positivity and negativity. The FTSE got back up but Frankfurt and Paris both ended sharply down. Scarily, given the data, bonds sold off once again and the US dollar was thumped in Dollar Index terms with the Euro, Aussie and Kiwi the big winners. The Aussie is above 81 cents this morning.
– The bond market rout continued with yields on German 10 year bunds surging from an intra-day low of 0.6% to close at 0.73%. That’s a massive capital loss to the owners — mostly the ECB I guess — but 1% seems a decent target now. US 10’s finished up 4 points to 2.29% and UK 10’s were at 2.02%. Australian 10’s rallied yesterday but are indicated to open this morning around 3.01%/3.02%.
– Turning to the data retail sales in the US were disappointing which is largely why the US dollar came under pressure. Expectations were for a gain of 0.2% but the print was no change. Of course that doesn’t sound like much but if you miss by just one-tenth of a basis point each month then growth is 1.2% lower. Miss by 0.2% each month and that’s almost 2.5%. In this economy that is a huge miss. Ex-autos retail sales were expected to increase a solid 0.5% but printed just 0.1% for the month.
– In Europe there was plenty of data too. While on balance it wasn’t terrible, for the most part it too missed expectations. Here is Westpac New Zealand Strategist Imre Spiezer’s comprehensive wrap:
Euroland GDP growth of 0.4% in Q1 was the fastest quarterly pace yet seen in the now two year old recovery from the 2011-13 recession, albeit a little below our 0.5% forecast, mainly because German growth of 0.3% failed to maintain the robust 0.7% pace set in Q4. Indeed, the breakdown for Q1 doesn’t fit neatly with the view that the righteous and reforming economies tend to do best: in that former category, as well as Germany, the Netherlands growth pace halved to 0.4%, and Austria remained close to stalled on 0.1%. Amongst the reformers, Portugal we learned today saw growth moderate a tick to 0.4%, whereas we knew already that poster boy for reform Spain accelerated to 0.9% growth in Q1. Also we welcome Cyprus back to growth on 1.4% in Q1 after their three and a half year long recession from 2011-2014. French GDP growth of 0.6% in Q1 up from stalled at the end of last year was amongst the fastest in the Eurozone; Italy grew 0.3% in Q1, its best growth rate in four years (and first positive qtr since Q3 2013). Annual growth rates are more instructive however. 1.0% yr in the Eurozone was paced by Germany with Spain and Portugal well above average on 2.6% yr and 1.4% yr but France lagged on 0.7% yr and Italy foundered on 0.0%yr.
– In China yesterday the data was crook. There is no other way to put it. Retail sales, industrial production, and urban investment all missed to the low side. That brings into question the efficacy of the current Chinese economic, fiscal and monetary policy settings. Linnette Lopez from Business Insider US reckons everything China’s doing isn’t working. It’s hard not to agree.
Here’s the overnight scoreboard (7.21am AEST):
- Dow Jones down 0.04% to 18,060
- Nasdaq up 0.11% to 4,981
- S&P 500 down 0.03% to 2,096
- London (FTSE 100) up 0.23% to 6,949
- Frankfurt (DAX) down 1.05% to 11,351
- Paris (CAC) down down 0.26% to 4,961
- Tokyo (Nikkei) up 0.71% to 19,764
- Shanghai (composite) down 0.56% to 4,376
- Hong Kong (Hang Seng) down 0.58% to 27,249
- ASX Futures Overnight (SPI June) -21 to 5,682
- AUDUSD: 0.8095
- EURUSD: 1.1345
- USDJPY: 119.18
- GBPUSD: 1.5739
- USDCAD: 1.1950
- Crude: $60.05
- Gold: $1,214
- Dalian Iron Ore (September): 422
– The local stock market did well yesterday climbing back above 5,700 to close at 5,715. That’s only 20-30 points below the break down level from the big range the ASX 200 traded in for most of this year. But a crash in the price of iron ore by more than 3% in overnight trade and the generally lacklustre performance on US and European markets could weigh on stocks today. It’s a long way off but 5,560/70 is the key downside level to watch if the ASX falls out of bed again.
– On commodity markets, the gnawing instability of the bond market sell off and a weaker US dollar finally woke the gold bulls from their slumber and it’s up around $20 an ounce from where it was late yesterday in Sydney. Crude has dipped back a little and copper is steady. As noted above, Dalian iron ore was pole-axed late in the day and overnight.
– On the data front today there is nothing in Australia while in New Zealand we’ll get Business PMI and retail sales. It’s Ascension Day in Europe so things will be quiet there and we get PPI in the US tonight.
And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day
Myer — Gap Fill Short Squeeze
Myer reported its 3rd quarter results yesterday, and like for like sales were up a massive 1.7%. Sure, 1.7% growth is not massive in absolute terms, but given Myer’s traditional quarterly tale of woe and sliding sales it marks a big turnaround. And Myer shares are the most unwanted in the market, with 20.2% of the issued shares sold short. Does the phrase “short squeeze” figure in your trading plan?
Strategically, Myer’s business still faces strong headwinds – the battle is by no means won. But a sales turnaround is usually the first signifier of an earnings turn. If that’s the case, the shorters are in deep trouble. Yesterday’s 9% + rally in Myer shares may be just the beginning.
The chart shows the move is highly significant. The March gap is now filled (and this move has produced its own gap) and the resistance at $1.52 clearly broken. The short position is approximately 180 million shares – and average daily turnover is around 4 million shares. Game on.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC
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