– The Fed released the FOMC minutes this morning at 4am AEST. They showed the Fed remains of the view it will be tightening rates this year and is preparing for the event. But they also show that June is close to being completely off the table. The Minutes also highlight that the Fed knows the move to tighten rates will have a material impact on “term” rates — read longer bonds — and there is a material risk of a repeat of the “taper tantrum”.
– The main impact of the minutes was that it gave bonds some room to rally with US 10’s dipping 4 points to 2.24%. This took Aussie 10’s down a little overnight and they are likely to open around 2.93% this morning. Rates in Europe were higher however, having closed before the release of the minutes.
– On forex markets the minutes lifted a weight off the Aussie, Euro and other currencies in the immediate aftermath of the release. The Aussie rallied up to around 0.7914 from a low of 0.7857. But this morning it’s back up at 0.7870. The potential reason for this is that if you take the time to read the Fed minutes you are left with no uncertainty that they still believe the Q1 weakness was transient (see San Francisco Fed research supporting this) and that they are still on track to tighten — probably in September. That means the US dollar should stay bid.
– On stocks the market was mixed in the US but fairly quiet with only small moves. Europe was mixed with the intra country moves based on internal fundamentals for a change.
Here’s the overnight scoreboard (8am AEST):
- Dow Jones down 0.15% to 18,285
- Nasdaq flatish at 5,071
- S&P 500 down 0.09% to 2,125
- London (FTSE 100) up 0.17% to 7,007
- Frankfurt (DAX) flatish at 11,848
- Paris (CAC) up 0.31% to 5,133
- Tokyo (Nikkei) up 0.85% to 20,196
- Shanghai (composite) up 0.7% to 4,4488
- Hong Kong (Hang Seng) down 0.39% to 27,585
- ASX Futures Overnight (SPI June) +17 to 5,622 (that’s where it was yesterday)
- US 10 Year Bond -0.04% to 2.25%
- Australian 10 year bond -0.05% to 2.93%
- AUDUSD: 0.7870
- EURUSD: 1.1088
- USDJPY: 121.28
- GBPUSD: 1.5528
- USDCAD: 1.2201
- Crude: $58.76
- Gold: $1,209
- Dalian Iron Ore (September): 419
– The local market had another fantastic bounce off what was very important but equally very strong support yesterday. In truth it keeps bouncing just above the level but you can see that previous resistance is now support. A break would be devastating for the technical outlook. But we traders DO NOT pre-empt breaks. We go with them but never pre-empt them. That’s the way to the poor house.
– In Asia yesterday the big 2.4% print for Japanese GDP and a weaker Yen helped the Nikkei close at another 15 year high. In Shanghai rates were also higher as the afterglow of more stimulus, announced this week, keeps traders positive. Today’s “flash” Chinese PMI is expected to be stronger based on a small sample of research I’ve read this morning, so watch out for that.
– On commodity markets iron ore stopped falling with Dalian up around 3.5 points from this time yesterday to 419 this morning. There has been a couple of interesting reports on iron ore in the past two days. Firstly, the big intervention of China into the market by bank rolling Brazilian giant Vale’s expansion plans. The other is Citibank analysts reckon prices will fall to under $40 a tonne later this year :S. Gold is around $1,207, copper is at $2.85 and crude is up a little after the big move the previous night at $59.79.
– On the data front today there is nothing of note out in Australia although we do get consumer inflation expectations. Then its “flash” manufacturing PMI’s for Japan, China, and Europe. Retail sales are out in Germany, jobless claims in the US, along with the Chicago Fed national activity index and existing home sales.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Like the CBA chart I featured yesterday, Westpac is testing potential support after a very steep decline.
Westpac is 19% below its April peak compared to CBA which is 14%. This partly reflects the fact that Westpac recently went ex-dividend. Where CBA has nudged below the support of its 200 day moving average, Westpac is well under it. If bank stocks do manage to consolidate around current levels, and stage a corrective rally, this chart suggests Westpac might have more scope for an upside bounce than CBA.
Signs that a corrective bounce is getting under way would be for the stock to stage a 3rd rejection of the trend line shown on the chart and follow that up with a move above the previous low at $33.08 (marked “3”).
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC