A quick recap:
Traders seem a bit non-plussed at the moment. You can see that in the price action this week in stock and forex markets. Chinese GDP, and associated data, on Monday was neither the positive or negative catalyst for movement. So with no other real drivers, traders have decided that there is no reason to materially alter prices.
That’s a smart move because over-trading is the way to the poor house.
But it means that in the US the major indices are largely unchanged. Europe, however, played a little bit of catch-up, with the previous night’s rally giving way to mild weakness across the region. In the UK, it was the miners who dragged the index down again.
That suggests another down day for the Aussie market today. ASX SPI200 December futures dipped 12 points but with oil down, iron ore not looking too flash, and base metals off, prices could come under a little more pressure. That’s particularly so given that prices have broken down through the uptrend from the September low (see Other News below).
On forex markets, the win by Justin Trudeau and his Liberals in Canada helped the Canadian dollar to the top of the G10 forex leaderboard. The Aussie is becalmed, but the Kiwi is lower after a weaker dairy auction this morning. The NAB’s co-head of global currency strategy Ray Attrill wrote this morning that there was “a small set-back in dairy prices at the latest Global Dairy Trade (GDT) auction. The GDT index was down 3.1% on two weeks ago, including a 4.6% drop in whole milk powder prices.” Euro is a little stronger, the yen a little weaker and sterling about the same as yesterday.
Commodity markets saw Nymex crude lose 0.74% to the mid $45 a barrel level. That’s around a 12-day low and suggestive of further weakness. Gold is back up a little, copper unchanged in the US but other base metals in London were under pressure.
Perhaps the most interesting move was on US interest rate markets, where rates were on the rise. Of course, the short end move can be placed squarely at the feet of worries about the debt ceiling but the economy looks in solid form. Housing starts was a beat again.
The Fed will do what it will do. But it’s easy to make the case that zero per cent interest rates are completely incompatible with the current state of the economy. Here’s a great article by Myles Udland from BI US highlighting just that.
It’s going to be a hot day with storms coming in New South Wales and it’s Geelong Cup day in Victoria, so with no data of note out in Australia or Asia, traders might take the day quietly. We do get the Westpac leading index of growth which might be interesting. Tonight, there is a Bank of Canada meeting and US MBA mortgage applications data. Not exactly a drought but it’s as close at it gets on the data front globally.
The overnight scoreboard (7.12am AEDT):
- Dow Jones Industrials -0.08% to 17,217
- Nasdaq Composite -0.5% to 4,880
- S&P 500 -0.14% to 2,030
- London (FTSE 100) -0.11% to 6,345
- Frankfurt (DAX) -0.16% to 10,147
- Tokyo (Nikkei) +0.42% to 18,207
- Shanghai (composite) +1.11% to 3,424
- Hong Kong (Hang Seng) -0.37% to 22,989
- ASX Futures overnight (SPI December) -12 to 5,201
- AUDUSD: 0.7256
- EURUSD: 1.1339
- USDJPY: 119.89
- GBPUSD: 1.5442
- USDCAD: 1.2977
- Nymex Crude (front contract): $45.55
- Copper (US front contract): $2.37
- Gold: $1,176
- Dalian Iron Ore (January): 371.5 (denominated in CNY)
- US 10 year bond rate: 2.07%
- Australian 10 year bond rate: 2.62%
– No wonder the momentum in the global stock market rally is stalling. Earnings season is proving a real disappointment in the US so far. CommSec chief economist Craig James reflected this in a note this morning which highlighted that, according to Thomson Reuters, “only 40% of S&P 500 companies that have reported earnings have beaten expectations on revenue”. Profits are one thing but revenue is the oil that greases the engine of corporate life and if revenues are missing, then that of itself must threaten the ability to generate profits and inevitably lead to job losses. Take the Yahoo results this morning, for example. They missed and they are going to “cut spending on their workforce”.
The market is also running into significant overhead technical resistance as well. Here’s the chart:
– For the local market, the lack of momentum in the US has pulled up the local rally and seen prices slip down through the recent trendline. You can see the price action here:
– We’ve got a couple of bearish China articles on the site today but I thought the explanation of why China’s economic situation is completely unsustainable by Barclays analyst Aroop Chatterjee was worth highlighting as worth a read. Adult beverage recommended whilst reading it.
– We’ve also got competing Aussie dollar stories today. David Scutt covered the CBA’s takedown of the Australian dollar where they have given 6 reasons to smoke the Australian dollar. I’ve covered the contrarian view of David Sokulsky, UBS Wealth Management’s head of investment strategy, who reckons that the Aussie might rally into the 75-77 region.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Sydney Airport (SYD.ASX)
If the coffee prices and parking charges at the airport led you to get with the strength and buy its shares, you’ve done well. Shareholders had another good day yesterday with the stock up 2% on solid passenger data for September. 3.335m passengers passed through the airport in September, up 4% on last year.
As the weekly chart below shows, the stock has had a great run. However, this year it’s had a steep departure from the long term trend growth and is now well above the 40 week moving average. Investors will be hoping the prospective dividend yield of about 4% for 2016 will be enough to prevent any crash landing. From a chart point of view, any move below the June high at 5.74 would be a sign of weakness, implying a significant correction or a period of protracted, choppy sideways movement.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC