– Friday’s end of the week trade on US stock markets was much stronger than the previous day with rises of more than 1% across the three big indices. Much of Europe was closed for May Day but traders in London took the FTSE slighthly higher. The US dollar got a little of its mojo back, sterling was hammered on concerns about this week’s general election and the US 10 year bonds rose sharply finishing at 2.12%. Global bond markets need to be watched closely – they and the Fed can eventually derail the stock market.
– Speaking of bonds, on Friday San Francisco Fed Chair John Williams said June could still be a “live” meeting for a change in policy given that the FOMC “will have two more months of economic data” before the decision needs to be made. He also highlighted the fact that the dollar and oil don’t even need to move from where they are for inflation to “move back up.” Williams’ comments echoed those of Wells Capital Managements US Chief Investment Strategist Jim Paulsen who has made the most cogent explanation and argument why the Fed is still looking to raise rates. In short, zero interest rates are not compatible with the current state of the US economy. True.
– That didn’t bother stocks traders who took US markets higher after a poor day’s trade Thursday, in spite of the bond market’s concerns. Healthcare and technology were the big movers in the US while the dollar regained some momentum. The Sterling was under intense pressure as traders rejected the recent rally given the proximity of the general election this Thursday and the real chance of political instability in a fractured Parliament. Euro was lower after the US consumer sentiment and vehicle sales supported the bond markets concerns about the Fed. Ultimately it’s the Fed which will decide the US dollar’s fate.
– Which is why the notion that the RBA, impatient with an Aussie dollar at 80 cents, will simply cut rates to knock it lower seems spurious. Sure, it’s part of the equation but if the RBA lets the rabbit run to 1.1080 and has been fairly patient on the ride lower why would they change their modis operandi now? If they cut tomorrow, they cut. But the RBA knows if they signal an end to easing in Australia with the cut, forex traders will gain almost as much traction as no cut. We’ll know at 2.30pm tomorrow. For what it’s worth the ANU ‘Shadow RBA’ reckons rates should be on hold and the rise on 6-12 months.
Here’s the overnight scoreboard (7.24am AEST):
- Dow Jones up 1.03% to 18,024
- Nasdaq up 1.29% to 5,005
- S&P 500 up 1.09% to 2,108
- London (FTSE 100) up 0.36% to 6,985
- Frankfurt (DAX) closed
- Paris (CAC)closed
- Tokyo (Nikkei) up 0.06% to 19,351
- Shanghai (composite) closed
- Hong Kong (Hang Seng) closed
- ASX Futures (SPI June) +34 to 5,833
- AUDUSD: 0.7831
- EURUSD: 1.1195
- USDJPY: 120.20
- GBPUSD: 1.5139
- USDCAD: 1.2157
- Crude: $59.30
- Gold: $1,178
– Locally the ASX looks set for a continuation of Friday’s rally in trade today. The range of 5,750 to 6,000 has been confirmed again and again over the course of 2015 and it seems it will break at some point. But for the moment traders are trading the range and buying in front of support and selling in front of resistance. Expect that not to change until it does. It’s likely only a shock budget (either way) or an offshore catalyst can see the break at the moment.
– Chinese markets were closed on Friday for May Day but that didn’t stop the official statistician, the NBS, reporting a bleak outlook for the economy based on the manufacturing PMI reading. We’ll get the HSBC version of manufacturing PMI today. In Japan the raft of data wasn’t terrible on Friday which helped the Nikkei finish just in the black after a mid-morning swoon.
– On commodity markets oil finished the week higher after breaking the top of the recent range. It retested the break on Friday which, from a technical point of view, is positive but overall was 0.8% lower at $59.30. Gold is languishing at $1178 — perhaps on the back of changed Fed expectations — but I’m still perplexed by this move and what it means. Dalian iron didn’t trade Friday but copper rose again and finished at $2.94 a pound.
– On the data front today we get TD inflation in Australia along with ANZ job ads and ABS building permits. In China we get HSBC manufacturing PMI as well as a raft of similar HSBC/Markit PMI’s around the globe.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day:
Sydney Airport (SYD.ASX)
I featured Sydney Airport as a stock to watch a couple of weeks ago after it produced a healthy set of traffic data for March.
Following recent overall market weakness, the share price has now come back to test the support of the 50 day moving average, I discussed at the time so I thought it an update may be of interest. Priced on a potential dividend yield of around 4.75% for the current financial year, investors seem unlikely to let it get too much cheaper. A rejection of the 50 day moving average support could lead to higher prices.
Ric Spooner, chief market analyst, CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC