A quick recap:
One thing is clear in the overnight price action. Traders on global stock markets are happy to take the bullish impetus of the promise of more ECB quantitative easing and a Chinese rate cut but they are still not confident enough to embrace their inner bull.
That saw Shanghai close up just half a per cent yesterday, the Nikkei rise around 0.6% to a 2-month high, and the ASX go absolutely nowhere. Overnight European stocks were down around half a per cent although the DAX in Germany managed to sneak into the black after the Ifo business climate was a little better than expected at 108.2, even though this was still down on last month.
In the US, both the Dow and S&P 500 have been slightly underwater all day while the Nasdaq has been trading either side of flat. Perhaps it was the weakness in the data that helped drag stocks lower. BI US’s Akin Oyedele reports “New home sales fell 11.5% at an annualized pace of 468,000 in September, according to the Census Bureau. That was the weakest pace since last November.”
Akin also reported that “The Dallas Fed Manufacturing Index came in at -12.7 for October. Economists had estimated that the index strengthened to -6.5 in October from -9.5 in the prior period.” Ouch, that’s a big miss.
So you can see why traders might have been a little reticent to pump stocks higher. The US economy’s sweet spot seems to be behind it for the current expansion. Equally though, perhaps traders are a little worried about what the Fed might say at 5am AEDT Thursday about rate hikes.
The wash up for local traders is that the Dec SPI200 futures contract is currently up just one point. But that move might mask some intra-index volatility we might see today after crude oil came under heavy selling again overnight with the front month contract falling below $44 for the first time in a month. Iron ore also dipped again and is now down 10% in 2 weeks.
In other markets however, it seems clear for the moment that forex traders are betting the Fed might be dovish, less likely to hike rates in 2015. After some very strong price action at the back end of last week, which drove euro from the high 1.13s last week to a low of 1.0987, traders are wary of driving further US dollar strength. No doubt traders recall Janet Yellen’s last post-FOMC press conference when she expressly noted a strong US dollar was one of the reasons the Fed passed on raising rates. That helped the euro climb off the mat and it’s back at 1.1050, GBP is back up at 1.5345 and USDJPY is sitting at 121.
The Aussie dollar managed to buck the trend of weaker oil and iron ore with a small rally yesterday which took it to 0.7260. It’s been rangebound since and is sitting at 0.751 this morning. The Kiwi has had a good day and is up half a per cent at 0.6782 taking AUDNZD down a little to 1.0672.
On commodities, besides the collapse in crude and continued weakness in iron ore, copper managed to hold firm at $2.35 a pound in US trade but the overall CRB commodity index is down around 0.74% to 192.08.
On the data front today we have the weekly ANZ Roy Morgan consumer confidence data out in Australia. Trade data is out in New Zealand and this will impact the Kiwi if it is materially deviant from expectations. Otherwise, it’s quite until UK GDP tonight which will be huge for those wondering about the path of the Bank of England and interest rates. In the US, durable goods are important, as are PMIs and the Richmond Fed index.
The overnight scoreboard (7.17am AEDT):
- Dow Jones Industrials -0.13% to 17,623
- Nasdaq Composite +0.06% to 5,034
- S&P 500 -0.19% to 2,071
- London (FTSE 100) -0.42% to 6,417
- Frankfurt (DAX) +0.06% to 10,801
- Tokyo (Nikkei)+0.65% to 18,947
- Shanghai (composite) +0.53% to 3,430
- Hong Kong (Hang Seng) -0.15% to 23,116
- ASX Futures overnight (SPI December) +1 to 5,333
- AUDUSD: 0.7239
- EURUSD: 1.1049
- USDJPY: 121.02
- GBPUSD: 1.5344
- USDCAD: 1.3164
- Nymex Crude (front contract): $43.68
- Copper (US front contract): $2.35
- Gold: $1,162
- Dalian Iron Ore (January): 365.5 (denominated in CNY)
- US 10 year bond rate: 2.05%
- Australian 10 year bond rate: 2.67%
– As an observer, the bind the Fed has got itself into is fascinating to watch. On the one hand, the employment story is a very strong one, unemployment is low and very close to full employment, the massive service sector is doing well and it looks like consumers are consuming. On the other hand though, manufacturing is struggling, the US dollar is strong and the external parts of the economy appear to be subtracting from growth. It’s a question of internal versus the external parts of the economy. For me, whichever way you cut it, zero interest rates are incompatible with the current state of the US economy.
That’s a point made by BI US’s Elena Holodny in a piece overnight highlighting the strength of the consumer sector and its impact on companies in that sector. Elena wrote:
Worries about slowing global growth are at least partly to blame for the wild swings in the markets in the past few months.
But one of the big bullish forces offsetting that has been the American consumer, which alone generates more demand than the entire Chinese economy.
We’re getting confirmation of this theme in the latest round of quarterly earnings reports, where businesses that cater to discretionary consumer spending are blowing away expectations.
You can find the full article here but the chart will blow you away. It also highlights the bind the Fed has got itself into.
– Traders are clearly nervous about the state of the US economy, housing slowing has garnered plenty of comment this morning, but more likely traders are just waiting for guidance from the Fed and consolidating what have been very solid gains. Whether it is the ASX 200, the S&P 500 or beyond, the rallies have been very solid and in the order of 10% or more from the lows.
What drives the market higher, the catalyst and where it comes from, is open to debate. But it seems clear that a softening in Fed language later this week, a hint that a tightening will be pushed in 2016, or indeed the opposite, could be the next big mover.
In the meantime, traders will take some comfort globally that the S&P 500 is holding above the 200-day moving average.
Here’s the chart:
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
NAB goes into tomorrow’s profit result with its chart looking precariously placed from a Fibonacci trader’s point of view.
Yesterday it came to rest at the 61.8% Fibonacci retracement. At this level, the latest little upswing is also a Fibonacci extension of the previous swing (cd =ab x 127% as labelled on the chart below).
The market closed on its low yesterday producing a red candle in a sign of potential nervousness . A quick move to fill Friday’s gap created by Draghi’s statement and NAB’s mortgage rate increase would be a further sign of weakness.
Naturally, NAB’s result is going to drive what happens to the share price. However, the chart suggests there’s scope for a pull back if the result is only in line with expectations. Reactions to a bit of a miss could be sharper than normal.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC