Good morning. Your Friday starts… now.
– It seems you can’t keep a good stock market rally down with the S&P closing at a fresh all-time high overnight after solid jobless claims, which fell to a 15-year low, showed the economy is looking healthy. That means of course that the economy’s strength is also inconsistent with zero interest rates. But the unexpected fall in producer prices, (headline down 0.4% versus +0.1% expected, ex-food and energy -0.2%) gave some hope that either the Fed might delay its tightening or at least that the economy might be strong enough to withstand the tightening.
– Europe was stronger too after an early dip. The rally was in no way harmed by the moves in the US but it seems the big driver more than likely was Mario Draghi’s reaffirmation of his plans for QE.
– If there is one question that springs to mind after last night’s moves on markets it is “Is that it for the global bond market rout?” Data flow in the US combined with some very strong verbal intervention from ECB president Mario Draghi overnight makes a solid case for a pause in the sell-off at least. Draghi said that “we will implement in full our purchase programme as announced and, in any case, until we see a sustained adjustment in the path of inflation.” That’s left bonds traders with no uncertainty that QE is continuing. That means the imbalance between supply and demand in favour of the ECB’s balance sheet buying continues. Which should put a lid on bond rates, at least for now. Indeed, US Treasuries closed lower, in yield, even though the Treasury’s 30-year auction was less well supported and went at a higher yield than expected.
– On forex markets, the US dollar hit its lowest level in months against the euro which topped out around 1.1440. The Aussie couldn’t kick on after running into serious overhead resistance in the form of the same trendline that constrained it back in January. The pound pushed above 1.58 before pulling back and the Canadian dollar, like the Aussie, flirted with a break out before reversing as well. Like bonds, that begs the question is the recent move over for the US dollar. It feels like it might be but it depends on how we close tonight.
Here’s the overnight scoreboard (7.25am AEST):
- Dow Jones up 1.06% to 18,525
- Nasdaq up 1.39% to 5,050
- S&P 500 up 1.08% to 2,121
- London (FTSE 100) up 0.34% to 6,973
- Frankfurt (DAX) up 1.84% to 11,559
- Paris (CAC) up 1.36% to 5,029
- Tokyo (Nikkei) down to 19,570
- Shanghai (composite) up 0.07% to 4,378
- Hong Kong (Hang Seng) up 0.014% to 27,286
- ASX Futures Overnight (SPI June) up 36 to 5722
- AUDUSD: 0.8079
- EURUSD: 1.1408
- USDJPY: 119.81
- GBPUSD: 1.5776
- USDCAD: 1.1982
- Crude: $59.67
- Gold: $1,221
- Dalian Iron Ore (September): 422
– On local markets, the ASX should have a good day today and will be challenging the 5,738/43 breakdown level as it tries to get back into the early year range. If the bond market rout is in hiatus then there is really no reason the ASX can’t have a solid recovery once it breaches back and through this resistance area. Bonds will be supportive with Westpac’s New Zealand strategist Imre Speizer reporting that “Australian 3yr government bond yields fell from 2.18% to 2.10% while the 10yr yield fell from 3.02% to 2.93%.”
– In Asia yesterday, the Shanghai composite has a strong close recovering from down around half a per cent at 4pm Sydney to finish in the black. Likely after the solid price action in US and European markets, yesterday’s remarkable flat close will give way to further ebullience today. Hong Kong Q1 GDP is out today so traders will be watching that closely.
– One thing worth noting with regard to China is that NAB Currency Strategist Emma Lawson highlighted this morning that “news that China is effectively implementing an ECB like LTRO program to encourage banks to buy local government debt to use as collateral at the PBoC to gain cheap funding.”
– On Commodity markets, gold’s rally continued and it is up at $1,221 this morning. Crude is down 1.37% to $59.67 and looking increasingly like the top is in for this little run. Likewise, Dalian iron ore finished at 422 yesterday – that’s down 20 or around 4.55% from the highs earlier this week. Copper is at $2.95 a pound.
– On the data front, there is nothing in Australia or New Zealand today. BoJ governor Kuroda is speaking, Singapore releases retail sales and tonight we get NYC Empire manufacturing, Michigan consumer confidence and industrial production in the US.
And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day
The medical research sector contains some of the most volatile stocks in the market. From an investment point of view, high volatility presents higher risk, but also higher potential rewards. Yesterday, two stocks illustrated this characteristic. Resmed plunged more than 18% after poor results from a clinical trial, and Sirtex leapt 35% after trial results that demonstrated its products prolonged life in liver cancer patients.
Without a degree in medical science, it’s difficult to assess the potential of a suite of treatment products. However, traders will recognise the price behaviour on the chart below. The traders’ view offers investors two possible entry strategies:
- Buy on Sirtex holding above yesterday’s breach of the previous high at $26.75, with a stop loss order around 26.25.
- Wait for a pullback to levels near the key support around $18.25
These levels may seem ambitious, but in a stock that has traded between $18.32 and $39.95, they are also appropriate.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC