Here's your 20-second guide to what Australian traders will be talking about this morning

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Good morning. It’s been a big night.

– There was no mucking around overnight with traders from the US, UK and Germany selling stocks, buying US dollars and selling gold from the first moment their feet were under their desks. The difficulty though is that while the dollar rallied on firm data and Fed rate hike expectations, US Treasuries rallied as well. That shouldn’t have happened but Westpac’s New Zealand based strategist Imre Speizer explains it:

Risk aversion accompanied by a flight to quality may explain the US dollar’s rise and US bond yields’ fall overnight. US economic data was mostly upbeat (core durable goods orders notable) and probably caused jitters in equity markets (S&P500 down 1.2%), while Greek non-progress appeared to catalyse a shift into core treasury markets.

That seems reasonable, particularly when you add in the Spanish election which seems to have thrown up another austerity busting bunch of politicians.

– While the forex moves were material, the Aussie was hammered down toward 77 cents with a fall of more than 1%, the US dollar index is up more than 1% and the euro is off around 0.88%, the reality is that besides the Japanese yen breaking to its lowest level since 2007, most other markets are still trading within established ranges.

– That’s also certainly the case in stock markets which in many jurisdictions are only just off recent multi-year or all-time highs. I raise that for two reasons. One is that the market structure is still very solid for the most part. The second is because if something does go awry, with Greece, Spain or an accelerated Fed tightening, there is a real chance – danger – of a material spike in market volatility. Recall the analyst on Monday who had a chilling take on the state of the market. I’ve written previously about the lack of liquidity in markets and the “one-wayness” of trader positions. It doesn’t guarantee a big move, nothing could happen. But it guarantees that if we get a shock, things could accelerate toward ugly very quickly.

– Anyway, to the data and we saw a triumph of strength for the US economy and seeming confirmation that Janet Yellen and her colleagues are indeed right about the first half slowdown in the US economy being transitory. Durable goods was the big one for me with the core measure (non-defense and aircraft) growing a solid 1% against expectations of a rise of just 0.3%. But the unexpected rise in the Conference Board’s measure of consumer confidence to 95.4 and the 0.95% increase in Case Shiller home prices suggest an improving consumer mood and thus economy.

Here’s the overnight scoreboard (6.58am AEST):

  • Dow Jones down 1.04% to 18,041
  • Nasdaq down 1.11% to 5,032
  • S&P 500 down 1.03% to 2,104
  • London (FTSE 100) down 1.18% to 6,948
  • Frankfurt (DAX) down 1.61% to 11,625
  • Paris (CAC) down 0.66% to 5,083
  • Tokyo (Nikkei) up 0.12% to 20,437
  • Shanghai (composite) up 2.02% to 4,910 (that’s it for me)
  • Hong Kong (Hang Seng) up 0.92% to 28,249
  • ASX Futures Overnight (SPI June) -30 to 5,748
  • US 10 Year Bond down 2.14%
  • Australian 10 year bond 2.84
  • AUDUSD: 0.7727
  • EURUSD: 1.0874
  • USDJPY: 123.11
  • GBPUSD: 1.5380
  • USDCAD: 1.2431
  • Crude: $58.36
  • Gold: $1,186
  • Dalian Iron Ore (September): 435

– There might be some grumpy traders on the ASX today. Maybe, it depends if the local market can defy the negativity, and the futures lead overnight. I say that because with a beautiful ‘W’ bottoming pattern and a break back inside the old trading range, a bunch of technical traders would have been dragged into long positions. It was only a marginal break on the physical and the overnight move has reversed, so this might end up as a failed break. That could get ugly.

– In Asia yesterday, the big news really was the aggressive tone of the Chinese Military White Paper. It had a strong warning for the US, Japan and China’s neighbours and sets up a transition of the Chinese military complex from defence to the projection of Chinese military might outward. That didn’t trouble Shanghai though, which continues to bathe in the afterglow of the 1,000 projects announced Monday. At 4,910, it’s close enough to the 5,000 level for me to well and truly step off the bus.

– On commodity markets, it was carnage once Europe walked in the door. Gold was absolutely poleaxed and has lost the best part of $20 an ounce on the back of the US dollar surge. Crude came under heavy selling, also losing 2.2%. The technical set-up now is for a very big drop from here over coming weeks. Copper bucked the trend and rose 0.7% while the Dalian move we saw in overnight trade yesterday morning was confirmed with trade yesterday.

– On the data front today, we get the release of Australia’s Q1 construction work done. It’s a partial indicator feeding into capex tomorrow and then the upcoming GDP release. Tonight in Germany we get the Gfk consumer confidence survey, mortgage applications and the Redbook in the US and then an interesting BoC monetary policy decision and announcement. There is also a big G7 meeting in Dresden.

And now from CMC Markets’ Ric Spooner is today’s Stock of the Day

James Hardie Industries

James Hardie is a stock that looks well positioned for current times. Residential building is one of the brighter spots in most of the economies it operates in and as an international operator, it benefits from a weaker $A. However, it’s had a great run since its profit announcement, it’s yet to trade ex-dividend and, for Fibonacci traders, it has reached an interesting place.
The Fibonacci projections shown on the chart below are two of a small set commonly used by technical traders. They assume that the swing up from the low at “4” will be:

  • 1.618 times the size of the correction from “3” back to “4” and
  • 0.618 times the length of the swing up from “X” to “3”
  • If the stock does form a peak at this Fibonacci cluster zone a correction might follow, creating a bit of value for those looking to invest in the themes driving this stock.

    Ric Spooner, chief market analyst, CMC Markets

    You can follow Ric on Twitter @ricspooner_CMC

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