A quick recap: I wish I could say the last 24 hours trade was as exciting as Australian politics. But alas, it been another relatively quiet night in the run-up to Friday morning’s FOMC announcement.
Having said that though it’s clear that stock traders are nervous across the globe as we edge toward what I think should be Fed liftoff this week. In the US, the big three indices were down around 0.4%, stocks in Europe dipped between half a per cent and one per cent except for the DAX in Frankfurt which eked out a 0.08% gain.
In Asia yesterday, it was the ASX which stood against the tide of selling with a rise of half a per cent. Overnight futures suggest that the market might be under a little bit of pressure with the SPI 200 December contract down 19 points. Across the rest of the region, Shanghai had a down day but recovered from the lows to end down a little more than 2.5%. Tokyo was also under pressure and fell more than 1.5%.
On forex markets, the Aussie dollar climbed to 0.7130ish yesterday before the Turnbull challenge announcement and a dip back into the 0.7060/70 region. But then traders remembered that politics hardly ever matters in Australian markets and the Aussie was bid back up to where it had fallen from. In the end that’s been a solid performance given that the euro dipped back a little.
If there was one interesting move, and one not really impacted by the Fed directly, it was the weakness in crude oil again. Nymex crude dipped 1% to the low $44 region again. It hasn’t quite broken down again but it is very close. Iron ore also pulled back after steadily rallying lately and gold is becalmed.
The overnight scoreboard (7.00am AEST):
- Dow Jones Industrials -0.38% to 16,370
- Nasdaq Composite -0.34% to 4,805
- S&P 500 -0.41% to 1,953
- London (FTSE 100) -0.54% to 6,084
- Frankfurt (DAX) +0.08% to 10,131
- Tokyo (Nikkei) -1.63% to 17,965
- Shanghai (composite) -2.67% to 3,114
- Hong Kong (Hang Seng) +0.27% to 21,156
- ASX Futures overnight (SPI December) -13 5,062
- AUDUSD: 0.7133
- EURUSD: 1.1324
- USDJPY: 120.18
- GBPUSD: 1.5427
- USDCAD: 1.3260
- Nymex Crude (front contract): $44.15
- Copper (US front contract): $2.42
- Gold: $1,108
- Dalian Iron Ore (September): 488 (denominated in CNY)
- US 10 year bond rate: 2.19%
- Australian 10 year bond rate: 2.70%
Now the news. My colleague Myles Udland from BI US has put together an interesting, I think telling, little piece about the governor of floor trade on the NYSE Rich Barry this morning. Myles says the message from Barry is that “one of the most bullish traders around says ‘the game has changed'”. That is, this is no longer a “buy the dip” market.
when looking at the big picture, we think it may be time to sell rallies in the market. Until we can see the market extend to fresh new highs, we think the game has changed and we may find ourselves in this ‘consolidation-mode’ for a while. Just a gut-feeling…
Certainly the technical outlook fits with this idea and trader psychology has clearly been rattled by the recent falls and volatility. If the Fed moves this week, traders have been psychologically prepped to start selling.
– The Aussie dollar is doing well at the moment. Were it not for the uncertainty surrounding the Fed’s decision later this week, it seems clear that traders would have a little more oomph in their buying. But for now they are waiting. That said however, it’s clear in this morning’s note from the BNZ’s Raiko Shareef that he and his colleagues at the NAB are getting a little bullish. Shareef wrote:
AUD’s gains overnight are more a result of a paring of short positions, ahead of the FOMC. Positioning data shows net AUD shorts are at extreme levels, consistent with anecdotes that overseas investors are extremely pessimistic on the Australian economy. Our NAB colleagues are much more constructive on the Australian economy. If the RBA remains on hold, as our colleagues expect, then there is room for AUD to rally further, as short positions are exited.
A move above 72 cents, if the Aussie can best it, would be the move that really gets the shorts covering.
– Speaking of the Aussie dollar, I picked up a research note from the ANZ yesterday which I reckon was one of the more important I’ve read recently. We know from the NAB business survey last week that business conditions are solid at the moment and the low Aussie dollar is doing its job as a shock absorber to the economy. But ANZ strategist Daniel Been wrote yesterday that the Aussie dollar is at levels that are “outright stimulatory” for the non-mining economy. He even said that the Aussie is at levels that are now stimulatory for mining. That’s huge. The Aussie dollar is doing its job.
– On politics, don’t worry too much about what’s going on in Canberra for Australian markets. In the 25 years or so I’ve been involved in markets there are not many days, and certainly less weeks, when politics weighs – or boosts – markets. Of course we had Paul Keating’s “banana republic” comment hurt the Aussie back in 1986, and we had a budget impasse back in the 1990s which spooked offshore investors. But while the big picture things like budget and fiscal positions impact the long run view of the nation, in general, politics plays only a very small role in traders’ minds when it comes to the positions they take day to day.
– Iron ore has run out of puff after a solid rally, according to my colleague David Scutt who wrote this morning that: “For the first time in five trading sessions, the iron ore price has fallen overnight. According to Metal Bulletin, the spot price for benchmark 62% ore fell by 1.54%, or 91 cents, to $58.10 a tonne.”
– On the data front today we have motor vehicles and the RBA minutes at 11.30. Niether should be market moving. The BoJ releases its monetary policy decision in Japan at 1pm and then tonight we get the release of CPI in UK. ZEW business is out in Germany and Europe. But the big release for the next 24 hours is retail sales in the US. That will be important for the Fed when it meets tomorrow.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Over the past couple of weeks, I have written pieces about the possibility that the charts of the big 4 banks could be forming basing patterns. While this remains a live possibility, the minor retreat of the last few days has set up an alternative scenario from a chart pattern point of view.
In the case of ANZ, the bullish scenario would involve an ongoing rally that moves beyond the late August peak at $29.13. This would complete a double bottom pattern with potential for a rally back into the $30.80- $32.35 price gap.
However, last week’s minor trend peak has set up a possible trend line that looks like the upper boundary of a triangle formation. Under this scenario a break below the triangle support would look bearish, setting up for a final leg down in the current downtrend.
From a trader’s point of view it’s best to be open to all possibilities given current market volatility.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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