– Stocks in the US were lower overnight with some weakness in healthcare and biotechs weighing on the market. In Europe however it was a totally different story with Greece trying to put its best foot forward in negotiations by changing its team. The world seems to have turned against Greek Finance Minister Varoufakis but that might actually bring things closer to a resolution. That’s what EU stock traders reckon anyway and markets rallied hard.
– Since the close Apple has released it earnings with a beat. It’s an incredible company. You can find the details here.
– On the data front the run of weak US data continued which helped lift the Euro higher (along with Greek sentiment) and pushed the US dollar down a little. The Markit “flash” services index fell from 59.2 to 57.8 in March. That’s still a great result but just another sign that the US economy is slowing and another indication that the Fed’s expectation of a growth bounce back is still questionable. However, the Dallas Fed manufacturing index did beat — it rose to -16 from -17.4.
– Yesterday we talked about two giant global forces that look like they’re shifting ahead of the RBA’s critical May meeting, one of which is the US dollars turn. That’s important because foreign exchange rates are the most important transfer price in the global economy. If the US dollar really is turning — as these rallies suggest — the competitive advantage that the Euro, GBP, CAD, Aussie and, to a much lesser extent, Kiwi has gained over the past year may be nearing or past their zenith. We’ll know after Q1 US GDP and the FOMC announcement on Wednesday night. For the moment the Euro and CAD are leading the charge.
Here’s the overnight scoreboard (7am AEST):
- Dow Jones down 0.23% 10 18,037
- Nasdaq down 0.63% to 5,060
- S&P 500 down 0.41% to 2,108
- London (FTSE 100) up 0.47% to 7,103
- Frankfurt (DAX) up 1.93% to 12,039
- Paris (CAC) up 1.3% to 5,268
- Tokyo (Nikkei) back below 20,000 with a close at 19,983
- Shanghai (composite) up an amazing 3.06% to 4,528
- Hong Kong (Hang Seng)up 1.33% to 28,433
- ASX Futures (SPI June) up 17 to 5,921
- AUDUSD: 0.7850
- EURUSD: 1.0889
- USDJPY: 119.03
- GBPUSD: 1.5228
- USDCAD: 1.2089
- Crude: $56.66
- Gold: $1,201
– The local stock market lagged the broader Asian rally yesterday with a gain of 0.83% to 5982. Add the 17 points of the June futures rally and the market is going to be, or at least indicated to be, set to test the 6,000 in trade today. Last night the implied rally at one stage took it through — in a physical sense — but it closed well below the level, suggesting the physical market might struggle a little today. We’ll see.
– In Asia yesterday Shanghai had another ripper fuelled by hopes of mergers and more stimulus. The bulls are firmly in control and while the government is doing many things to try to even up the balance — warning new investors of the potential harm to their capital should the market turn — the reality is traders are driving higher because there is a wall of money being put to work. It’s kind of like a private sector QE program — just into stocks not on to bank balance sheets.
– On rates markets US 10’s closed at 1.92%, German Bunds at 0.17% and UK Gilts were up 5 points to 1.72%.
– On commodity markets there is a top on the current Nymex crude rally it can’t break, which suggests lower prices before it can accelerate. So it’s no surprise crude is off 0.87% this morning at $56.65. Gold has rallied off a minor break at the bottom of the range which took it below $1180 and is all the way back to $1,202 today. Iron ore continues to rally with September Dalian at 433.5, while copper is back at $2.78 a pound.
– On the data front today RBA Governor Glenn Stevens speaks at 8.40 this morning. There is some doubt he’ll say anything market moving given the proximity of next week’s RBA meeting but we’ll have full coverage regardless. UK GDP is out tonight along with US Case Shiller house prices and the Redbook.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day:
The recent rally in iron ore and related mining stocks has been characterised by the kind of momentum associated with short covering and quitting market stances now deemed to be wrong. Even if the buying is not actually covering short positions, it seems some investors may have formed the view that they are seriously underweight this sector.
As the chart below shows, the last few trading days have seen a near vertical climb in BHP’s price with the market gapping higher each morning. These gaps in an ongoing uptrend are labelled “continuation” gaps and are a classic sign of powerful, “urgent” buying. With the exception of Friday, volumes have been relatively light indicating buyers are finding it hard to get set. If you look across to the left and the last major rally in BHP you will see another strong gapping rally in early February.
However, BHP is now approaching its 200 day moving average at $32.90. This neatly stopped the last rally in early March. Also around here is the 78.6% Fibonacci retracement of the last decline. Standing in front of a freight train and selling into a rally with this momentum is usually a high risk strategy. However, the odds may improve if BHP’s share price actually starts to reject this resistance by forming a trend peak and starting to decline in coming days.
Ric Spooner, chief market analyst, CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC