Quick Recap: Stocks in the US rallied on Friday night but Europe remained under pressure. It was a microcosm of the week that was in many ways with US stocks recovering from the depths of the Chinese RMB-induced malaise but Europe’s markets still ended the week between two and 5 per cent lower. What exactly is driving that is hard to know but it bears watching.
The US rally was good news for the local market with the SPI 200 September contract closing up 9 points at 5300. But coming after another down day Friday and a poor week when the ASX broke the 42-month uptrend, the outlook has darkened.
On forex markets, it was quiet for a change but the US dollar a tiny bit stronger. The euro is just holding above 1.11 this morning. Sterling is looking good, maybe heading toward 1.57, and while the Aussie recovered superbly off the lows at 0.7216 last week, it’s still clear sellers lurk overhead.
On bond markets, rates were a little higher in the US and across the globe but only marginally so. Commodities were a little quieter as well but Nymex crude crashed to a new low before recovering to finish up slightly.
It’s a quiet start to a relatively quiet week but there is still plenty around to keep traders guessing. Here’s a link to my weekly diary.
The overnight scoreboard (7.26am AEST):
- Dow Jones +0.4% to 17,477
- Nasdaq +0.29% to 5,048
- S&P 500 +0.39% to 2,091
- London (FTSE 100) -0.27% to 6,550
- Frankfurt (DAX) -0.27% to 10,985
- Tokyo (Nikkei) -0.37% to 20,519
- Shanghai (composite) +0.28% to 3,965
- Hong Kong (Hang Seng) -0.12% to 23,991
- ASX Futures overnight (SPI September) +9 to 5,300
- AUDUSD: 0.7375
- EURUSD: 1.1109
- USDJPY: 124.26
- GBPUSD: 1.5646
- USDCAD: 1.3087
- Crude: $42.50
- Gold: $1,113
- Dalian Iron Ore (September): 441.5 (it’s denominated in CNY folks)
– Now the news. Greece got its bailout on Friday. Sort of, anyway, because there is a big catch-22 in the deal with the Eurogroup wanting IMF involvement. But Madame Lagarde and her minions still want debt relief. Over the weekend she again reiterated that Greek debt was unsustainable. Something everyone except the Eurogroup seems to understand.
– In the US, there were more signs that the economy is still on track for the first Fed tightening in 2015. Of course, the debate is all about the timing now. That makes CPI release this Wednesday night for July a huge release. But Friday Industrial production hit an eight-month high of 0.6% against expectations of just a 0.3% rise. That’s solid. Akin Oyedele reported that PNC chief economist Stuart Hoffman said in a note that “The big July increase in industrial production is further proof that the U.S. economy is expanding at an above-trend pace in mid-2015, after a weak start to the year tied to bad weather and the West Coast ports labour dispute”. PPI was a little higher as well up 0.2% against expectations of a 0.1% rise while Uni of Michigan consumer sentiment printed 92.9 for August, below the 93.5 expected.
– The RMB fix and CNY and CNH moves appear to have settled down, according to Ray Attrill, the NAB’s co-head of global currency strategy. That means there is “no strong signal from Friday’s RMB moves for AUD (or NZD) today, the overall message from Friday being that the guts of the CNY devaluation orchestrated by the PBoC’s starting last Tuesday is probably behind us. Fixation with the daily CNY fix threatens to quickly become ‘so last week’. We should now quickly return to fretting about the Fed.” Indeed, the Fed and strong US data. Again, Wednesday night and CPI is huge for traders.
– Turning to the local ASX, and it’s worth looking at the chart I used in my Oz Diary. What’s clear here is that we have seen, in last week’s price action, the ASX crack down and through the trendline which stretches back to February 2012. That biases it toward 5,150 and some hedge fund types are telling me it’s 4,800 they are targeting now. Here’s the chart:
– Oil is still very interesting with Societe Generale’s Kit Juckes summarising the market’s bearish mood in a note to clients last week. Juckes said:
It’s now clear to financial markets that tackling oversupply in a world with more modest demand growth, requires a more protracted undershoot in oil prices. The same could be said of the whole commodity complex.
Here’s the chart of the CRB. It’s below the GFC lows.
– It’s very quiet on the data front today with Swiss retails and the Buba monthly report the highlights. Trade in Europe might be interesting though, especially what’s going on with China. In the US, the NY Empire manufacturing index is out.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
National Australia Bank
NAB’s share price has hit the top end of a zone of chart support between about $30.90 and $31.80. This is shown by the dashed blue lines on the chart below and has been the price range where the stock has consistently bottomed out since February last year.
For good measure the 38.2% Fibonacci retracement of the whole $19.40/39.23 rally also intersects at this level.
With its capital raising behind it and this year’s dividend likely to provide a yield of around 6.2% before franking, you’d have to think this support range will again prove effective.
However, there is a more bearish chart scenario. This would be an AB=CD formation that would see the current downward correction extend to the 61.8% Fibonacci retracement level around $27. Certainly this looks possible chart wise but we’d need some unforseen bad news to get the stock price down to these levels.
As things currently stand, at $27, NAB would be trading on a prospective dividend yield of 7.3% before franking which looks a bit too generous to me.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC