First, the big news – your 20-second guide is evolving and from next week will be found on Business Insider titled “6 things Australian traders will be talking about this morning”.
“Conditions could well be met.”
These four words in the minutes from the last FOMC meeting, released this morning, almost guarantee that the Fed will hike rates when it next meets in mid-December.
You might think that that would spook stock markets but that’s certainly not the case in the immediate aftermath of the release. Perhaps, most likely, it is because in flagging the move higher in rates the Fed is also highlighting the economy is resilient enough to withstand such a move. That seems a fair takeaway. Certainly from where I sit, the US economy is far too strong for zero interest rates.
So with a little more than an hour to go the big three US indexes are up around 1% or more. That sets up a good day for the local market.
Yesterday’s performance on the ASX200 with a rise of 0.3% was incredible when you take the big falls in commodity prices and the miners into account. Certainly the banks’ rally helped, But I for one was looking the wrong way. Looking at futures and this positivity and the US rally has fed into overnight trade with the Dec SPI200 contract up close to 1% with a 48 point gain (6.30am).
So even though gold is still languishing, Dr Copper is still reflecting weak global growth making a new 6 year low, and iron ore was down again, the ASX looks set for a good day today.
One thing traders will be focused on specifically is the BHP AGM in Perth today. More details about the Brazil dam burst costs and clean up is likely to be forthcoming. But there is also going to be plenty of interest in the dividend policy as well.
On currency markets, the Aussie has underperformed and is down on the day along with its commodity cousins. It’s sitting at 0.7089 which is actually higher than where it was before the release of the FOMC minutes. This, along with the small rally in the euro, yen and other pairs could be a sign that much is already baked into the cake in forexland. And with the euro down at 6 month lows, contrarians might be itching to go the other way.
Certainly that’s something BoAML has highlighted in their latest global survey of fund managers. More in “other news”.
Bonds remain fairly quiet, reinforcing the Fed’s communication policy has left no one in any doubt of the course of action they will take. That is a win for the Fed and ultimately the market. Executing a first rate rise in 9 years without blowing markets up has a very high degree of difficulty.
On the data front today, it’s quiet in Australia but we get NZ PPI and Japanese trade data and, more importantly, the BoJ monetary policy decision. Tonight we get retail sales in the UK, Jens Weidmann from the Bundesbank is speaking and then we get the Philly Fed and jobless claims in the US.
The overnight scoreboard (7am AEDT, NB: US Market close is 8am AEDT):
- Dow Jones Industrials +1.09% to 17680
- Nasdaq Composite +1.42% to 5056
- S&P 500 +1.11% to 2073
- London (FTSE 100) -0.16% to 6278
- Frankfurt (DAX) -0.1% to 10959
- ASX Futures overnight (SPI December) -48 to 5179
- AUDUSD: 0.7096
- EURUSD: 1.0646
- USDJPY: 123.36
- Nymex Crude (front contract): $40.84
- Copper (US front contract): $2.08
- Gold: $1,069
- Dalian Iron Ore (January): 334.5 (denominated in CNY)
- US 10-year bond rate: 2.27%
- Australian 10-year bond rate: 2.91%
– You know when everyone clambers over to one side on the whale watching boat and you have that sense that things are not good and you should head the other way? We’ll that’s a feeling many traders and fund manager might have on their US dollar longs once they read the Bank of America Merrill Lynch global fund manager survey. It identifies the long US dollar as the pain trade of the survey. But it’s not the only one that is extended. You can read more here.
– Okay, for those who thought it was hard getting a trade on at the moment until the new world when the regulators hammer banks on their trading activities with new capital rules. The FT reports this morning that:
Global regulators have estimated that contentious new rules will force one bank to set aside nine times as much capital as it currently does to guard against market risk in its trading book.
We all know the bankers almost blew global finance up back in the GFC. But we also know that if banks can’t trade, markets will grind to a halt, liquidity disappear and then the central banks will be complaining about markets not functioning correctly.
Not sure they have fully thought this through. You can read more here.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
So is this the beginning of a Xmas rally and a strong finish for the stock market or just another blip in a volatile time leading into key interest rate decisions by the European Central Bank and the Fed?
With commodities not providing much assistance for Xmas rally prospects at this stage, a lot of the heavy lifting will need to be done by bank stocks if the ASX 200 is going to power on from here.
The NAB chart has got off to a strong start with one of John Bollinger’s classic “W” formations where the first low is made under the lower Bollinger Band and the second above it. The next test could easily be the resistance of the 20 day moving average and previous low around $29.50. Failure here could be a worry.
The strong outcome would see the share price push through this resistance and go on to make a tag of the upper Bollinger Band.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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