– Stock markets rallied cautiously overnight after the nuclear agreement with Iran helped energy shares offset ongoing concerns about earnings season in the US. Initially the announcement of the Iranian deal, late in our timezone yesterday, saw oil come under heavy pressure but the fact that sanctions remain in place helped it regain its composure and by the end of trade Nymex crude was more than 2% higher. European stocks and ASX futures had a good night, the Euro is still under pressure but the Aussie dollar has been getting a little trader love since the release of the very solid NAB business survey yesterday.
– Looking at news and events overnight there was some interesting outcomes. NAB currency strategist Emma Lawson summed them up nicely in her morning note:
The US data was surprisingly soft overnight, with retail sales dropping unexpectedly (-0.3% against +0.3% expected), as did the NFIB small business optimism survey. Excuses given are the drop in equities and the rise in gasoline prices, but more evidence is needed for a trend. It did depress yields though. More focus on Yellen tonight.
The UK information was more interesting, in that BoE Governor Carney, yet again, chose to remind markets that interest rate hikes are closer than they think. GBP focussed on that part of the speech, rather than the bit which said that the hiking cycle would be limited, gradual and that the peak would be far lower than historical levels. The lower than expected CPI print was also taken in its stride. Core inflation now sits at 0.8%yoyA, from 0.9%yoy.
The news from Europe was, unsurprisingly, negative: the weight of all the negative news and uncertainty did not help the ZEW sentiment survey. It fell to 42.7A from 53.7. The German’s were not quite as concerned, with the German ZEW actually rising: 63.9A (60E, 62.9P). European industrial production was quite soft. Just note that there are still events unfolding in Greece and across the Euro area, as the agreement has to be voted on by Greece (today) and the various governments. That may generate some news flow.
– Greece didn’t really factor and the Shanghai shenanigans yesterday — it rose, fell, rose and then closed lower — were neither bad enough, nor good enough, to move markets. Though that may be different today with the release of some very important data out of China. In fact, there’s a flood of data with the release of Q2 GDP, industrial production and retail sales. Yesterday we saw the release of a disastrous GDP for Singapore which fell a massive 4.6%.. That’s not necessarily a big lead for China but it is emblematic of a slowdown in the region. Likewise, the collapse in Chinese ship building suggests weakness in global shipping rates and the economy that underpins them.
– Locally we are looking forward to another good day on the ASX after a very solid — spectacular really — rise of 1.9% yesterday. As Chris Pash reported “all sectors were in the green with about $30 billion in value added to the market. The ASX 200 was 2% higher at one point, but lost momentum to close at a 1.9% premium. The session was the best day rally since mid-February.” It was miners and banks which led the rally but retailers had a good day too.
– On forex markets it’s worth noting what a difference the NAB business survey made to the outlook for the Aussie dollar. While most expectations are for it to continue to fall, the unexpected strength in conditions, confidence and especially profitability gave the bears some pause and the bulls an appetite. This morning the Aussie is still only in the mid 0.7450 region but it has strengthened on the crosses. That shows there’s been a little extra support added to the market. What a difference a day makes — that’s forex folks. As Emma Lawson noted above, Sterling rocketed higher, Euro is stuck at 1.10 (waiting for the Greek vote no doubt) and the Kiwi is at 67 cents as it tries to climb off the mat.
– On commodity markets it was a good day for chart watchers of crude. Having traded down into the mid $50 region a couple of week’s back, Nymex crude has been trying to build a base. Yesterday’s move isn’t exactly a key reversal but it’s very close. The rally of 2.24% to $53.37 for the front contract and the August contract higher suggests the rally might still have legs. Gold remains in the doldrums at $1,155, Dalian iron ore is at 371.5 and copper’s around the same level at $2.55 a pound.
– On the data front Chinese data, a BoJ announcement and press conference, as well as the Westpac Melbourne Institute consumer sentiment index and motor vehicle sales are released today. Tonight the key event is FOMC chair Janet Yellen’s walk up Capitol Hill for her semi-annual address to congress. That’s a huge event risk for bond and forex traders given she’s likely to reinforce that a rate hike is coming. Before that, however, we get UK unemployment and French CPI.
Here’s the overnight scoreboard (7.42am AEST):
- Dow Jones up up 0.42% to 18,053
- Nasdaq up 0.66% to 5,104
- S&P 500 up 0.45% to 2,108
- London (FTSE 100) up 0.23% to 6,753
- Frankfurt (DAX) up 0.28% to 11,516
- Tokyo (Nikkei) up 1.5% to 20,385
- Shanghai (composite) down 1.12% to 3,926
- Hong Kong (Hang Seng) down 0.41% to 25,120
- ASX Futures overnight (SPI September) up 18 points to 5,536
- US 10 Year Bonds -5 to 2.40%
- German 10 Year Bonds -2 to 0.82%
- Australian 10 Year Bonds -3 to 3.00%
- AUDUSD: 0.7447
- EURUSD: 1.1006
- USDJPY: 123.36
- GBPUSD: 1.5629
- USDCAD: 1.2729
- Crude: $53.37
- Gold: $1,155
- Dalian Iron Ore (September): 371.5