Quick Recap: It was a sea of red across US and most European bourses with only the CAC in Paris and the AEX in Athens able to cling to a marginal gain for the day. Bonds also rallied, rates were lower, the US dollar was under a little pressure and crude and gold both fell as well. The Aussie dollar remains friendless and under pressure but iron ore managed to rally.
The overnight scoreboard (7.40am AEST):
- Dow Jones down 0.67% to 17,731
- Nasdaq down 0.49% to 5,146
- S&P 500 down 0.57% to 2,102
- London (FTSE 100) down 0.18% to 6,655
- Frankfurt (DAX) down 0.07% to 11,512
- Tokyo (Nikkei) up 0.44% to 20,683
- Shanghai (composite) up 2.44% to 4,124
- Hong Kong (Hang Seng) up 0.46% to 25,398
- ASX Futures overnight (SPI September) -19 to 5,513
- AUDUSD: 0.7349
- EURUSD: 1.0985
- USDJPY: 123.91
- GBPUSD: 1.5505
- USDCAD: 1.3037
- Crude: $48.85
- Gold: $1,090
- Dalian Iron Ore (September): 381
– Now the big news. US weekly jobless claims printed a stellar 255,000 for the past week. That, says Craig James from Commsec, is “the lowest since November 1973.” Add in the fact that “US Leading Indicators Index rose by a better-than-expected by 0.6% in June,” and yesterday we saw that housing remains on fire and we have more evidence that the Fed won’t delay too much longer before it raises rates. Put simply, the current pace of US economic growth is not compatible with 0% interest rates.
– That move toward a Fed tightening is super important for stocks as Henry Blodget points out this morning in his excellent take on why stocks could be in for a big, perhaps 50%, correction.
I think stocks are priced to deliver lousy returns over the next seven to 10 years. I also would not be surprised to see the stock market drop sharply from this level, perhaps as much as 30% to 50% over a couple of years.
None of this means for sure that the market will crash or that you should sell stocks. (Again — I own stocks, and I’m not selling them.) It does mean, however, that you should be mentally prepared for the possibility of a major pullback and lousy long-term returns.
– Back to stocks and its earnings that are weighing on sentiment at the moment. Last night, traders worried about the reports from the big stocks like Caterpillar and 3M and this, along with the weaker lead from Europe, saw the Dow have a triple-digit loss. In the UK, it was earnings as well with Aberdeen Asset Management missing but Pearson rallied after announcing it had sold the FT to Japan’s Nikkei. Europe was also lower.
– In Asia yesterday, another sign the authorities are winning with a 2.44% gain in the Shanghai composite index. As David Scutt wrote yesterday afternoon, “It now looks safe to say that Beijing’s efforts to underpin the nation’s stock market – including the arrest of ‘malicious’ short-sellers and blanket ban on selling for some market participants – is working.” Indeed. The Nikkei had a better day yesterday, up 0.44% on the back of local earnings optimism.
– In Australia, the ASX was under pressure and in the red all day. The 200 index had a wild ride, trading down below 5590 before rallying back toward square only to fall back to this level before rallying again. In the end, the market was off 0.4%. The key drivers of the market’s performance as Chris Pash wrote yesterday, were the moves in the miners and the banks. Speaking of the banks, the big announcement yesterday that the ANZ was jacking up the rate on investment loans by 27 basis points, 0.27%, shows just how much impact APRA’s 10% limit on investor lending – and the enforcement of it – is having on Australian banking. It also highlights how much the housing finance market has changed recently.
Futures indicate more pressure today on prices in Australia.
– On foreign exchange markets, the euro is up but the Aussie dollar hasn’t benefited at all from the dip in the USD dollar. There is a clear sentiment shift in traders’ perceptions about the Aussie dollar on that could see it come under real pressure if traders get a decent catalyst to sell. Kiwi held onto most of its gains from yesterday while sterling came under pressure after retail sales for June, printing -0.2% ex fuel and energy against expectations of a 0.3% rise. That questions timing for a BoE rate hike.
– On commodity markets, the selling continues. Last night it was copper that was hammered lower and it’s now down at $2.37 a pound. Let me write that again – Dr Copper printed $2.37. Its lowest level since 2009. Nymex crude was lower again at $48.85, gold is at $1,090. Dalian iron ore was higher.
– Datawise today, it’s market Flash PMI day today for China and across much of the planet. Other than that, it’s only new home sales in the US to worry about.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Tuesday was a big day for Echo Entertainment. Shareholders got the long awaited news that Echo and its partners have won the tender for development of the Queen’s Wharf project in Brisbane. This will include an entertainment precinct and casino which is where Echo will be involved.
Although Echo was expected to win this tender, it wasn’t a certainty and rival casino operator Crown was the main competitor.
The news produced a big flurry of activity in Echo’s share price which has subsequently died down. The stock had an early rally on news that Crown had failed to beat Echo to this potential growth opportunity. As usual though, the devil will be in the detail and markets are awaiting more information on costs to assess the risk/reward balance of this project as far as Echo is concerned.
The net effect of all this was that the stock had a trading range of around 7.5% with turnover of 12m shares (about 4 times the average). After all this Echo closed barely changed up only 0.5% on the day. Wednesday saw another heavy day’s trading with around 7m shares changing hands but all was quiet yesterday with volume subsiding to 2m and price remaining little changed.
In the meantime, the casino sector has some cyclical upside with the weaker Aussie Dollar benefitting inbound tourism; especially from China while low interest rates and weaker petrol prices are giving local punters some extra spending power. For those prepared to sit on the sidelines hoping for a better buying opportunity in Echo, there looks to be significant chart support around $4.30. This consists of previous lows, a rising trend line and the 200 day moving average.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC