A quick recap:
Sentiment is a volatile beast at the moment. But news in Asia yesterday that the Fed looks set to walk away from a 2015 rate hike helped turn sentiment around. This positivity filtered into Europe and then the US as traders focused on the upside of no Fed hikes.
The NAB’s global co-head of currency strategy Ray Attrill says that “the fundamental catalyst for much of the price action was US CPI which again printed low but has started to increase toward the Fed’s 2% target (see In other news for more details).
That’s left the Dow up more than 200 points and around 1.3% higher while the S&P is up around 1.5% and the Nasdaq fairly zipped higher with a 1.8% gain. There were similar moves in Europe with all the major indices up more than 1%.
For local traders, the positivity helped the ASX 200 physical index up around 0.6% in trade yesterday and futures traders have taken it higher overnight. The December SPI200 contract is 39 points higher this morning at 5,246. That will put the market within striking distance of the top of the recent range again. While that will make some traders nervous any move above 5,300 could be the signal for a strong rally.
On forex markets the US dollar got a reprieve from the CPI and some nicely timed comments from National Bank of Austria chief Ewald Nowotny, one of the ECB’s governing council. BI UK’s Mike Bird reports he said inflation is too low and that “it’s quite obvious that additional sets of instruments are necessary”. That signalled a halt to the euro’s rally, US dollar’s fall, and the euro is down around 1 cent from this time yesterday. Sterling has remained strong, the yen is still below 119 and the Kiwi is still ripping higher and is up another 1% today to 0.6852. That means that even though the Australian dollar is above 73 cents, AUDNZD has collapsed to 1.0694.
On commodity markets, iron ore is down again, or went splat as David Scutt put it this morning. Crude oil recovered early weakness into the $45 region recovering an amazing $1.60 a barrel to be up on the day. Dr Copper is up again this morning and gold is only down a smidge.
The positivity in stock markets has driven rates a little higher again with US 10s back above 2%, the 2-year note up 5 points and Australian rates a little higher as consequence as well. But the Aussie 10 at 2.57% is close to the 4-month low.
On the data front, it is a big day today in Australia with the RBA releasing its Financial Stability Review. It’s the RBA’s deep dive into how things are going in the Australian economy and the financial system. So we’ll get a look at where the RBA sees the risks and the strengths.
Offshore we get Kiwi CPI, speeches from both the governor and deputy governor of the BoJ, trade in Italy and then EU CPI and trade. In the US, it’s industrial production, capacity utilisation, Uni of Michigan consumer confidence and the news on investment into and out of the US with the release of the TIC flow report.
The overnight scoreboard (6.42am AEDT):
- Dow Jones Industrials +1.28% to 17,141
- Nasdaq Composite +1.82% to 4,870
- S&P 500 +1.49% to 2,023
- London (FTSE 100) +1.1% to 6,338
- Frankfurt (DAX) +1.5% to 10,064
- Tokyo (Nikkei) +1.15% to 18,096
- Shanghai (composite)+2.32% to 3,338
- Hong Kong (Hang Seng) +2% to 22,888
- ASX Futures overnight (SPI December) +39 to 5,246
- AUDUSD: 0.7333
- EURUSD: 1.1375
- USDJPY: 118.87
- GBPUSD: 1.5489
- USDCAD: 1.2846
- Nymex Crude (front contract): $46.96
- Copper (US front contract): $2.43
- Gold: $1,182
- Dalian Iron Ore (January): 369.5 (denominated in CNY)
- US 10 year bond rate: 2.01%
- Australian 10 year bond rate: 2.57%
– Of course, it’s the data that is driving the reappraisal of the outlook for the US economy at the moment and which has seen expectations of a Fed rate hike recede into 2016. So the fact that producer prices on Wednesday night fell into deflation was important, as was the release last night of the CPI data. Akin Oyedele from BI US reports that “US inflation fell in September, but not really. The consumer price index (CPI) fell 0.2% compared to August, below expectations, and was flat year-on-year, according to the Bureau of Labour Statistics. But excluding volatile food and energy costs, core CPI rose 0.2% month-on-month, and 1.9% year-on-year. The energy and gasoline indexes declined sharply, while indexes for food, and all items excluding food and energy rose.”
So the monthly data is still on the weakish side but the annual rate is climbing back toward 2%. That kind of makes the case for the Fed hike, particularly when the jobs market continues to look strong as the jobless claims data showed last night.
Akin reported: “The monthly average of initial jobless claims fell to 265,000, the lowest level since December 1973. Last week, unemployment insurance claims totaled 255,000, down from 263,000 in the prior period, and better than expected.”
So it’s not hard to see why both economists and the market are confused and why there seems to be a mild civil war happening at the Fed as the Washington-based governors battle the regionally-based presidents.
– The problem is made worse when you look at the state of US manufacturing. Data continues to point to a real challenge for industry. The NAB’s Attrill wrote this morning, “Incoming survey data meanwhile was not so flash, with the Empire manufacturing index lifting to -11.36 from -14.67 but which was expected to rise to -8.0. The Philly Fed survey also rose, but only to -4.5 from -6.0 against -2 expected, but the new orders index plunged tom -10.6 from +9.4. Five months ago it was 15.2.”
– Here’s a really interesting piece of news I stumbled across in the FT this morning. James Mackintosh says that the standard deviation of year ahead forecasts for the global economy – the gap between what the pessimists and the optimists think about the US, UK, eurozone and Japan – is close to all time lows. That means economists are in the unique position of furious agreement about the growth outlook.
But, Mackintosh says that’s not a good thing. “When economists have all thought the same thing in the past it has usually been a sign of trouble ahead: 2007, 2011 when investors wrongly thought the eurozone problems were past, just before the Asian crisis in 1997…” You can read his article here.
– And to finish off, this one is an interesting historical factoid that traders on the NYSE have been chatting about overnight. NYSE floor governor Rich Barry shared a little note with traders which reminded them today is October 16 and also an option expiry day. 28 years ago on October 16 the Dow had its then biggest ever fall. The following Monday was the 1987 crash. Not sure if Barry included the hash tag #justsayin – but he probably should have.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Freelancer Limited (FLN.ASX)
This stock rose 12% yesterday after releasing its quarterly results and announcing that US regulatory authorities had approved its acquisition of online payments company Escrow Limited.
Freelancer is an emerging online market place looking to emulate the success of companies like Seek, Carsales and REA. It puts independent contractors in touch with employers and operates on a global basis.
The Escrow acquisition looks a good strategic fit that might both complement the existing business and provide a separate growth platform. It’s a payment service which authorises the seller to ship goods or perform a service once the buyer’s payment is received. It then releases payment to the seller once the buyer confirms it has received the goods.
Potential investors might be encouraged by the fact that FLN peaked neatly at its 61.8% Fibonacci retracement level yesterday. If it does struggle to get past this level for a while, there might yet be some corrective weakness and profit taking to buy into.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC