Quick Recap: The big news continues to be the crash in commodity prices with Nymex crude down another 1.5% overnight, copper lower again and the CRB commodity index printing a fresh 11-year low.
That didn’t really hurt stocks though, with the US recovering from early falls after the weak NY Empire manufacturing index was eclipsed by home builder confidence which hit a 10-year high. Across the Atlantic, the FTSE was flat and the DAX ended in the red after it missed the US recovery. ASX SPI 200 futures are up 9 points again today indicating a mildly positive bias at trade’s open.
On rates markets, the surprisingly weak Empire report drove bonds lower, according to Westpac’s Wellington-based strategist Imre Speizer, but there is also little doubt the deflationary pulse of the continued commodity crash has helped.
On currency markets, the RMB fix yesterday came and went without any action but the US dollar was mildly stronger across most of the last 24 hours, even with that manufacturing data. What was most interesting – besides the unnerving calm in the majors – is the continued crash in currencies from Russia to Malaysia and beyond. Likewise, last night there was the strange, weak, price action in sterling in the face of hawkish comments in the British press from a BoE MPC member. The Aussie has gone nowhere for 24 hours but the Kiwi is modestly higher
The overnight scoreboard (7.06am AEST):
- Dow Jones +0.39% to 17,545
- Nasdaq +0.86% to 5,091
- S&P 500 +0.52% to 2,102
- London (FTSE 100) -0.01% to 6,550
- Frankfurt (DAX) -0.41% to 10,940
- Tokyo (Nikkei) +0.49% to 20,620
- Shanghai (composite) +0.73% to 3,994
- Hong Kong (Hang Seng)-0.74% to 23,814
- ASX Futures overnight (SPI September) +9 to 5,311
- AUDUSD: 0.7371
- EURUSD: 1.1076
- USDJPY: 124.37
- GBPUSD: 1.5582
- USDCAD: 1.3079
- Crude: $41.90
- Gold: $1,117
- Dalian Iron Ore (September): 445.5 (it’s denominated in CNY folks)
– Now the news. US data was mixed with manufacturing looking terrible but home builder sentiment solid. Akin Oyedele from BI US highlighted that “Empire state manufacturing activity collapsed to a six-year low.” But this is New York, not one of the big manufacturing states, so Barclays economists reckon we can take it with a grain of salt. That’s what the market did too, instead focusing on “Home builder confidence which hit a a nine-year high. The National Association of Home Builders’ housing market index came in at 61, matching expectations, and was the highest since November 2005. “Today’s report is consistent with our forecast for a gradual strengthening of the single-family housing sector in 2015,” said NAHB chief economist David Crowe.
– So the Dow recovered from being down 135 points at one stage in the US morning to finish up 67 points. The S&P and Nasdaq reversed as well which also helped the ASX SPI 200 futures rally hard. At one point last night the September contract was down at 5266 before it climbed off the mat to close at 5311. That’s a solid performance, but one influenced by US trade. Not influenced by US trade however, was the performance of the banks yesterday. They all performed solidly, with Westpac up 1.95% to $31.94, NAB 1.57% to $32.26 and the ANZ 0.79% to $29.52. Even the CBA’s fall of around 1% wasn’t too bad in the context of its capital raise. Technically though, traders will be watching last week’s low.
– Turning to emerging markets and it’s not just commodity exporting countries getting hit in this sell-off, according to the NAB’s co-head of global currency strategy Ray Attrill. In his note to clients this morning Attrill said:
We’d note too that in this now quite prolonged sell-off in global Emerging Markets – to which the AUD has been historically highly correlated with respect to Asia FX – it is has been the currencies of countries that are not just big commodity exporters but which also have domestic political problems that have been hardest hit (unstable government or unfolding corruption scandals – read Brazil, Malaysia, Turkey – and now in the Thailand what looks like geopolitical strife).
– On currency markets, outside of the fall in sterling, which is seriously weird given Bank of England member Kristin Forbes warned that the central bank desperately has to hike rates soon, the only notable news is that the NAB yesterday downgraded its forecast for the Aussie dollar to 68 cents – in the first half of 2016. NAB’s Attrill said that this comes from “anticipation of (modest) additional US dollar strength assuming the start of Fed policy normalisation is not delayed beyond 2015, ongoing negative terms of trade pressures and the aforementioned drag from rising USD/Asia FX in general – plus some allowance for overshoot – drives the current forecasts.”
– Turning to commodities and its getting ugly – uglier – for oil. Crude was lower again overnight and the forecasts are pointing lower still. Cumberland Advisors’ David Kotok thinks the worst may be yet to come. “We could go back to $US15 or $US20, this is a downward slope, we don’t know a bottom,” he said overnight. John Mauldin, writing in his weekly ‘Thoughts from the Frontline’, made a strong case that oil could fall as well and that Saudi Arabia has misunderstood the cost curve of the US, and global, shale oil industry. It’s worth a look.
Here’s an update on the big break of trend support for Nymex oil – please note this is the 2nd contract not the one that expires this week and is below $42 a Bbl.
– On the data front today, we get the RBA minutes and new motor vehicle sales. Tonight in the UK we get the CPI and PPI which will be important in the context of the when of the BoE’s rate hike cycle. The Kiwis have a dairy auction, so forex traders will be watching that. In the US, it’s more housing data on the calendar with the release of starts and building permits.