– There was an interesting disconnect between Europe and the US overnight. After a raft of weaker than expected European data and a warning from Peter Praet that the ECB will front load its QE program before the summer holidays the Euro tanked and European stocks rallied hard.
– The Euro selling was a massive move, with the single currency down 1.47% to around 1.1150. That’s a long way from the mid 1.1450 over the past few trading days. That of course reflected the US dollar’s strength and is a lesson once again to those who think the RBA controls the Aussie that global forces matter in forex markets. The Aussie hasn’t fallen as far as the Euro but the 0.9% drop to the low 79 cent region matched the Pounds fall. The Kiwi and the CAD both fell but a little less around 0.6%. That’s the same amount the USDJPY lost.
– One interesting thing which suggests that the US dollar strength over the past two days is about more than just problems in Europe, Greece and QE, is that US 10 year bonds rose again last night. The loss of 5 points to 2.29% is another test back toward the “taper tantrum” downtrend and speaks of enduring disquiet about the Fed. I think the release of an influential San Francisco Fed research paper on Monday night saying US growth in Q1 was 1.8% seasonally adjusted, not 0.2%, could be part of it. Housing starts surging by 20.2% in April to a seasonally adjusted pace of 1.14 million units — the highest since November 2007 — and building permit data certainly didn’t help the market either.
Here’s the overnight scoreboard (8am AEST):
- Dow Jones up 0.07% to 18,312
- Nasdaq down 0.17% to 5,070
- S&P 500 down 0.06% 2,127
- London (FTSE 100) up 0.38% to 6,995
- Frankfurt (DAX) up 2.23% to 11,853
- Paris (CAC) up 2.09% to 5,117
- Tokyo (Nikkei) up 0.68% to 20,026
- Shanghai (composite) up 3.15% to 4,418
- Hong Kong (Hang Seng) up 0.37% to 27,693
- ASX Futures Overnight (SPI June) +2 to 5,622
- US 10 Year Bond +0.05% to 2.29%
- Australian 10 year bond +0.04% to 3.00%
- AUDUSD: 0.7913
- EURUSD: 1.1149
- USDJPY: 120.72
- GBPUSD: 1.5510
- USDCAD: 1.2228
- Crude: $57.26
- Gold: $1,207
- Dalian Iron Ore (September): 415.5
– The other big story last night was the collapse of the crude price. Its rally ran out of puff over the past week. Last night saw a lovely technical break and the sellers piled in like a game of “stacks on” in the backyard. The front month of Nymex crude fell 3.65% to $57.26. Gold fell $18 an ounce and copper lost 2.34% to $2.85. There is a lesson here — much in global markets is about relative currency values, especially the US dollar.
– Locally on the ASX yesterday the market ended lower once more and is again dangerously close to a big break toward 5,500 and potentially 5,300 based on the technical outlook. It hasn’t happened yet so traders aren’t getting too excited. But they are watching the 200 day moving average as a guide to whether or not the ASX 200 is about to take another step lower. With iron ore down again the miners could be under pressure but the banks have fallen a long way recently with increased chatter about whether they represent value. These cross currents, and how they settle, will determine where to next for the Australian market. However, in the current environment offshore is also important.
– In Asia Japan rallied after some positive comments by senior politicians and bureaucrats about the impact of the BoJ’s QE and low rates program on inflation and the economy. Shanghai was also higher but the rally was turbo-charged as the market reacts to the previous days reform announcements. At the heart of this was a continuation of reform, particularly financial reform, “to push forward the development of the real economy”. But there was also some seriously targeted stimulus with the announcement of another $40 billion in railway and subway projects. Hopefully those protesters from the weekend might finally get a rail line.
– On the data front today we get the release of Westpac’s Monthly Consumer Sentiment survey. But before that Japanese GDP stands as a test for forex traders and Abenomics. EU PPI tonight and the release of the BoE MPC vote cut is important in Europe this evening. Tomorrow morning at 4am we get the FOMC minutes. They’ll be poured over for signs of the if and when of the Fed’s first rate hike.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The 200 day moving average is looking like a bit of a line in the sand for CBA shareholders. The share price has recently failed at 2 attempts to get back on the right side of it.
Overall, this chart doesn’t look to be providing much encouragement for potential buyers at this stage. The two recent price gaps are the sort of thing normally associated with strong, impulsive downtrends.
There’s also an argument to say that we are currently in the middle leg of this downtrend and that this middle leg is in an Elliot 5 wave format as I’ve outlined on the chart. If this is correct, this middle stage of the downtrend will move below the latest low at “3”. Even if CBA struggles above the 200 day moving average, it would take a move back through the top of the gap and the low at “1” around $87.20 to invalidate this bearish chart interpretation.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC