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

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Quick Recap: The late rally in Chinese stocks yesterday afternoon set Europe up for a good day, but they had a great one instead with all the major indices more than 3% higher. That set up a solid lead for the US markets which rallied from the open.

The release of the stronger than expected revision to Q2 GDP, which printed 3.7% up from 2.3% reported for the last read, might have complicated things for the Fed when it meets in a couple of weeks. Likewise the slightly stronger than expected jobless claims continues to highlight the strength of the employment sector.

But traders aren’t worried about that for the moment and the strength in the US and Europe looks set to reinforce the positivity that is already gripping Australian and Asian markets in trade today. Overnight the SPI 200 ASX futures contract for September put on another 97 points to sit at 5,283.

Elsewhere, the volatility continued. Crude oil put on a ridiculous 9.59% with the front contract rallying all the way to $42.30. That’s a rally of $3.70 in one day. Volatility begets volatility and downside or upside, it’s still vol. Gold is at $1,123, copper bounced as well to $2.32. The CRB commodity index rose close to 4%.

On forex markets, the US dollar is stronger against the euro, yen and GBP. But the commodity block was higher with the Aussie, Kiwi and CAD all bucking the stronger US dollar trend. Bonds were fairly calm.

The overnight scoreboard (6.27am AEST):

  • Dow Jones +2.27% to 16,654
  • Nasdaq +2.45% to 4,812
  • S&P 500 +2.43% to 1,987
  • London (FTSE 100) +3.56% to 6,192
  • Frankfurt (DAX) +3.18% to 10,315
  • Tokyo (Nikkei) +1.08% to 18,574
  • Shanghai (composite) +5.4% to 3,085
  • Hong Kong (Hang Seng) +3.6% to 21,838
  • ASX Futures overnight (SPI September) +97 to 5,283
  • AUDUSD: 0.7169
  • EURUSD: 1.1250
  • USDJPY: 120.97
  • GBPUSD: 1.5403
  • USDCAD: 1.3207
  • Nymex Crude (front contract): $42.76 BOOM!
  • Copper (US front contract): $2.32
  • Gold: $1,126
  • Dalian Iron Ore (September): 433 (denominated in CNY)

Now the news. US GDP last night was a solid print and returns pressure on the Fed to act. One of Australia’s most senior fund management CIOs told me the other day that he thinks the Fed still has to act in September because they have backed themselves into a corner. The result of not acting could be worse than taking the long-telegraphed first move higher in interest rates since 2006. The 3.7% print was pretty solid and converts to around 0.9% for the quarter if expressed in Australian terms. One bright spot was the growth in personal consumption and non-residential fixed investment.

– In terms of market sentiment, things are certainly on the improve with Kymberly Martin, the BNZ’s Wellington based strategist, writing this morning that “our global risk appetite index (0-100%) has clawed its way back to 25% from 16% earlier in the week.” Certainly that is still at somewhat depressed levels which reflects the fact that sentiment has been hit by the recent 10% fall in the big US indices. Indeed, one of global finance’s most important living economists, Professor Robert Shiller from Yale, wrote in the New York Times overnight that:

Ten percent drops in the S&P 500 in just five trading days – such as we have just experieinced – have not been common. Out of the 29 corrections since 1950, only nine happened in five days or less. Most of those happened since 2000, possibly because of the internet and faster communications. Such rare sharp drops are psychologically significant; an extreme one-day collapse seems to create anxiety that imprints on peoples memories and could contribute to downward momentum.

That’s true.

But, part of that is also that this fear traders and investors experience decreases liquidity, making the market thinner, which also makes the kinds of whipsaw snapback we are currently experiencing possible. Indeed, the S&P 500 is now just 10/20 points shy of my trading target for the rally at 2000/2010. We’ll know soon if Shiller is right and the sellers come back into the market.

– Soc Gen’s perma-bear Albert Edwards doesn’t need to wait though. He’s 99.7% convinced that we are already in a bear market. Myles Udland from BI US reports this morning that:

In his latest note to clients, Edwards warns that the recent snapback rallies we’ve seen in the stock market are merely headfakes and that stocks are probably headed lower.

In his note, Edwards references a model developed by his colleague Andrew Lapthorne, which incorporates macroeconomic and fundamental equity variables, and which currently indicates a 99.7% probability that we are in a bear market.

So the sellers won’t be far off if he’s right, it seems.

– But for today after the stellar recovery from the mid-afternoon swoon on the Dow and S&P into a very strong close, the ASX is likely to have another good day to follow up on yesterday’s solid performance where the index rallied 1.2%. After crude oil’s huge rally, the energy sector should do well today as will the commodity companies more broadly, given the overnight move in the complex as highlighted by the 4% rally in the CRB.

– Turning to the Fed and interest rates overnight, Westpac’s New Zealand based strategist Imre Speizer appears to have picked up a little tempering in the tone of Fed speakers. In his thoughts this morning he wrote that “US 2yr treasury yields rose from 0.66% to 0.71% following the GDP data but later sagged to 0.67%. The 10yr yield rose from 2.14% to 2.21% – a nine-day high – before slipping back to 3.16%. Fed hawk George said the timing of the rate hike should take into account potential market impact, which sounds more cautious than her previous comments. Fed fund futures are currently pricing around a 30% chance of a rate hike in September, 100% priced not until April. The 7yr auction went well, awarded at 1bp below market yield. Australian 3yr government bond (futures) yields rose from 1.79% to 1.84% before slipping back to 1.81%, while the 10yr yield ranged between 2.72% and 2.78%.”

– On commodity markets, oil rocketed higher. Here’s Craig James, Commsec’s chief economist, recap on the action:

“World oil prices posted their biggest one-day gains since 2009 on Thursday. US economic growth was stronger than expected, private data showed drawdowns of crude at the Cushing delivery point in the US and Shell declared force majeure on Nigerian oil exports. Brent crude soared by US$4.42 or 10.2% to US$47.56 a barrel while US Nymex crude rose by US$3.96 or 10.3% to US$42.56 a barrel.”

Elsewhere base metals were solidly higher across the board but gold is becalmed again.

– On the data front today, we get a raft of data from Japan. This includes, retail trade, CPI and unemployment. Jackson Hole is on in the US and we’ll all be waiting to see what Stanley Fisher says over the weekend. Tonight we get UK GDP, Euro economic and business sentiment along with German CPI. In the US, we’ll also get the release of core personal consumption expenditure.

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

Apple Inc

So is that it? Do the big rallies in the past couple of trading sessions mean we’ve found the bottom?

It’s never an easy question but it’s even more than usually difficult given the wild swings we’ve seen recently. Chart traders will be looking for some evidence either in the form of a break above resistance or a bounce off key supports.

Apple Inc has been at the epicentre of the US selloff and its chart indicates the dimensions of the problem. At its low on Monday, Apple was down around 32% from its late April peak. Last night it closed 21% above Monday’s low. The fact that Apple was pushed below the last major peak (dashed purple line) is a sign of weakness from a chart pattern point of view.

At this stage, Apple is yet to do the opposite and demonstrate longer term strength by pushing back up through recent lows on the weekly chart (dashed red line). The next major resistance zone looks to be the 40-week moving average and early July lows between about $119.40 and $121.50.

Unless Apple can take that out, the safest trading approach at this stage may be to assume the long term trend is still down.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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