Quick Recap: Markets appear to have settled a little after the PBOC assured traders yesterday that the three-day move we have seen this week in the onshore RMB fixing rate was not the start of some massive move toward further weakness.
Whether you believe them or not is a moot point because the fact the PBOC deputy governor said the devaluation pressure of “around 3%” has eased pleased many. Indeed, the CNY rate closed yesterday at 3.982, below the morning fixing rate.
That gave European stocks clear air to recover some, but certainly not all of the previous day’s falls. Stocks in the US had a messy day’s trade with moves into the red, the black and then ended flat to down. Not exactly encouraging for the bulls in the US, nor in Australia where the SPI 200 futures are off 5 points.
US bonds drifted higher on the back of solid jobless claims and retail sales data which gave traders a reason to rethink whether or not the Chinese action will actually impact the Fed’s decision next month. More likely the deflationary pulse looming from the continued crash in the oil price is a much bigger trigger.
On forex markets, the Aussie dollar failed at resistance yesterday and the commodity bloc came under some pressure with the CAD and Kiwi off sharply in what was a general night of mild USD strength.
Gold also failed at resistance yesterday, copper is up a little and iron ore is doing better than many would expect.
The overnight scoreboard (7.00am AEST):
- Dow Jones +0.03% to 17,408
- Nasdaq -0.21% to 5,033
- S&P 500 -0.13% to 2,083
- London (FTSE 100) -0.04% to 6,568
- Frankfurt (DAX) +0.82% to 11,014
- Tokyo (Nikkei) +0.99% to 20,595
- Shanghai (composite) +1.76% to 3,954
- Hong Kong (Hang Seng) +0.43% to 24,018
- ASX Futures overnight (SPI September) -5 to 5,307
- AUDUSD: 0.7356
- EURUSD: 1.1150
- USDJPY: 124.42
- GBPUSD: 1.5605
- USDCAD: 1.3058
- Crude: $42.25
- Gold: $1,114
- Dalian Iron Ore (September): 444.5 (it’s denominated in CNY folks)
– Now the news. The big news is the continued crash in crude oil prices. At present there is much talk about the impact of the Chinese moves in currency markets and what it might mean for markets. But if you really want to know where the global deflationary pulse is coming from, look no further than crashing crude. Last night the front Nymex crude contract was down 2.49% putting prices at just $42.25 a barrel. That reinforces the fact that this month crude has broken the uptrend from 1999.
Inflation, winter is coming.
– On the data front, besides Greece shocking everyone with a positive print for GDP, the real action was in the US with retail sales and jobless claims strong. Akin Oyedele from BI US wrote this morning that:
Retail sales rose 0.6% month-on-month and 0.4% excluding auto and gas, in line with forecasts. The biggest jump over the past year, at 9%, came from food services and drinking places, or, restaurants and bars. The data for June were revised up from previous negative prints. HSBC’s Ryan Wang said in a client note that the retail sales numbers show consumer spending is on track after weakness in the first half of the year. “This report looks solid after a run of disappointing numbers, and it bolsters the case for a September rate hike,” Pantheon Macroeconomics’ Ian Shepherdson wrote in a note to clients.
Initial jobless claims totaled 274,000 last week, and the four-week moving average fell to a 15-year low of 266,250. “The very low level of claims — near all-time lows, when adjusted for population growth — is consistent with companies’ complaints that they can’t find qualified staff,” Shepherdson wrote.
If it wasn’t for China this week, traders would all be talking enthusiastically about the Fed tightening coming in September.
– Back to China for a second and Westpac’s Wellington based strategist Imre Spiezer highlighted this morning that markets got a lift from the Chinese central bank saying that “speculation the yuan would depreciate by 10% was ‘ridiculous’.” Indeed, they did but traders looking at the price action overnight might find some residual concerns in global stock markets. Take the ASX for example – it’s broken a pretty important trendline stretching back a few years and looks increasingly like it might be in a short term downtrend from recent highs. Nothing much happened yesterday as stocks were flat and certainly last night’s futures move give no real reason for concern. Technically though…
– On forex markets, NAB senior economist David deGaris wrote this morning that:
Oil-linked currencies were lower, the oil market fretting over excess supply. The AUD eased somewhat on net, remaining settled, opening this morning toward the higher end of its overnight range. After the previous 24 hours of gyrations in the CNY from PBoC intervention to arrest its expected decline and keep the market guessing day to day, the CNY has been steady overnight ahead of this morning’s fix.
Indicators are that the RMB fix today should be less exciting for traders than the last three. But all eyes will be on China again at 11.15am AEST, 9.15 Beijing time.
– On the data front today, retail sales are out in New Zealand. Then the RMB fix and at 12.10pm the RBA’s assistant governor (Economics), Chris Kent, is speaking on Recent Labour Market Developments. This is going to be a very important speech as it will give an insight into the RBA’s thinking on the state of the jobs market. The tonight we get GDP in Germany, Italy, Portugal and the big one, the EU. In the US it’s PPI, industrial production and consumer confidence.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
There didn’t seem too much wrong with Telstra’s result yesterday other than the absence of any wow factor like a new buy back. However, the share price has dropped more than 3% in the last 2 days and broke below its 200-day moving average yesterday.
Potential buyers looking for supports might be interested that it bounced off the 78.6% Fibonacci retracement level yesterday. That said, it’s a bit of “falling knife” at the moment and it’s yet to go ex-dividend. It may pay to wait for some signs that price is stabilising before plunging in.
If the share price just keeps falling from here then potential chart support levels of interest could be the previous lows around $6.01 or below that the old highs around $5.75 (at that level, Telstra would be trading on about 15.5 times next year’s forecast earnings.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC