– The week ended with many global stock markets testing or closing at multi-year highs. The Nikkei in Tokyo was above 20,000 at one stage Friday. That’s the first time in 15 years. While the Nikkei couldn’t hold on to its gains in the end Shanghai was almost 2% higher, the Hang Seng, FTSE and DAX all rose more than 1%. With the news that GE is divesting assets and buying back stock, US stocks also gained but only by around 0.5%. Earnings reports are much more numerous this week so if the notion that analysts have downgraded earnings expectations too much proves correct it could be another good week for stocks.
– The interesting conundrum for traders at the moment remains the outlook for the US economy and the Fed. Retail sales in the US this week will definitely help gauge where consumers are against a backdrop of weaker than expected data in the US for the past 3 months. It will also inform expectations about when the Fed is going to start its tightening campaign. That’s important for the US dollar which surged once again on Friday night pushing the Euro down below 1.06. Euro looks set to continue to fall according to Jens Nordvig, Nomura New York’s Head of currency strategy: “You can look at euro/yen, clearly breaking lower. The big picture globally is negative yields in the euro zone and long yields trading at incredibly low yields, substantially lower than Japanese yields,” he told Reuters. Euro is also falling against the Aussie and of course the US dollar.
– Greece is also weighing on both Euro and the EU as a whole. Reports out over the past few days have highlighted the exasperation of EU negotiators with reports in the Frankfurter Allgemeine Sonntagszeitung over the weekend saying that the Greek negotiator at last week’s meeting acted like a “taxi driver.” This has been followed up with another story saying Greece has blown its best hope of a debt deal due to its confrontational style. The Petersen Institute has floated a realistic plan which could save the Greek budget billions of dollars. But Reuters reports an EU official said “There’s just no appetite in the euro zone for a grand bargain to take over Greece’s debt to the IMF and the ECB.” Watch this space.
– On the data front US import prices fell by 0.3% in March taking the year on year dip to 10.5%. Export prices increased by 0.1% which Craig James from CommSec says is the first gain since July last year.
Here’s the overnight scoreboard (6.47 am AET):
- Dow Jones up 0.55% to 18,057
- Nasdaq up 0.43% to 4,995
- S&P 500 up 0.52% to 2102
- London (FTSE 100) up 1.06% to 7,089 (new all-time high)
- Frankfurt (DAX) up 1.71% to 12,374
- Paris (CAC) up 0.6% to 5,240
- Tokyo (Nikkei) down 0.15% to 19,907
- Shanghai (composite) up 1.95% to 4,034
- Hong Kong (Hang Seng) up 1.22% to 27,272
- ASX Futures (SPI June) up 22 points to 5,975
- AUDUSD: 0.7668
- EURUSD: 1.0594
- USDJPY: 120.26
- GBPUSD: 1.4624
- USDCAD: 1.2573
- Crude: $51.77
- Gold: $1,207
– It’s time for the ASX to take out resistance at 6,000 and kick on. The global preconditions are there and not withstanding the troubles our miners are or might be in, the overall operating environment in Australia for well managed firms is not too bad. There is no reason why the market shouldn’t have a crack higher. Credit Suisse agrees and thinks the ASX will blow through 6000 and keep going.
– Besides the Euro thumping, Forex traders have belted the Pound as well as we close in on the General Election on May 7. The uncertainty around the political situation is really weighing on Sterling sentiment, with polls in the UK over the weekend predicting a tie. One thing to note – the BoE has arguably the best central banker on the planet so whatever the outcome there is a steady hand on that tiller. The Aussie has not been able to resist the US dollar’s surge but it is outperforming many other currencies. It might be super expensive to go on holidays in the US and we may only get 1 for 1 with the Kiwis but at least Europe is getting cheaper for holidays. France, waves, wine and cheese… mmmmm.
– On commodity markets Nymex April crude is up $1 to $51.77, gold surprised most observers by rallying $13 to $1,207. It now sits at an uncomfortable mid range in the recent trading box. Copper is at $2.75 and after a poor effort last week there was a tiny rally in Dalian September iron ore to 377. Newcastle coal for June delivery dipped 40 cents to $52,90 a tonne.
– The Australian data front today is barren but China has trade data which is super important as traders and economists dissect it for information about the state of the economic slowdown. Elsewhere, its second and third tier data.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day:
AHE has a cyclical risk via its significant exposure to the iron ore economy in WA. 70% of its EBITDA comes from its car dealer franchises and 50% of the profit from this division is sourced in Western Australia.
Despite this risk, AHE’s forward PE valuation is back to the highs of 12 months ago. It’s currently trading around 13.5 times expected earnings for F16. AHE is also getting close to the zone of chart resistance formed by its 2011 peak at $4.36 and the 2009 peak at $4.43.
Against that background, the chart is starting to look interesting. It looks a chance of completing a butterfly pattern which I’ve drawn in on the chart below. This is a reversal pattern that involves a false start. There’s an initial move past a major high like the one I’ve labelled “X” and then a reversal. If AHE makes a trend peak anywhere up to about $4.38 and then starts to fall away, it will qualify as butterfly pattern, providing potential for a return to more conservative valuations back below $4.00.
Ric Spooner, chief market analyst, CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC