Quick Recap: Friday saw a big move higher for stocks in Shanghai and Tokyo but the ebullience was largely quarantined to these markets as the ASX lagged and the Hang Seng fell. That set up an interesting night of volatility in the US and Europe where stocks ended mixed. The FTSE in London was the best performer with an almost 1% gain but the Dow finished a volatile day’s trade in the red – but only just.
While the bulls and the bears battled in stocks it was the bulls in firm control on commodity markets with crude oil making another 5% gain and copper rallying again along with other base metals. Even gold managed to end the week a little higher while the CRB commodity index was 2.32% higher at 197.6.
The US dollar bulls had control also in forex markets where the euro has been pumped all the way back below 1.12 after last week’s high above 1.17. The yen has sold off toward 122 in USDJPY terms but the Aussie is hanging at 0.7150.
Key to the US dollar move, and the big question for traders to grapple with in the early part of this week, is signs from Fed vice-chair Stanley Fischer at Jackson Hole over the weekend that the September FOMC meeting is live. The question is what does that mean for stocks, bonds and the US dollar and whether ‘live’ means action or just ‘live’ for a decision?
Now, the overnight scoreboard (6.22am AEST):
- Dow Jones-0.07% to 16,643
- Nasdaq +0.32% to 4,828
- S&P 500 +0.07% to 1,989
- London (FTSE 100) +0.9% to 6,248
- Frankfurt (DAX) -0.16% to 10,299
- Tokyo (Nikkei) +3.02% to 19,136
- Shanghai (composite) +4.81% to 3,232
- Hong Kong (Hang Seng) -1.04% to 21,612
- ASX Futures overnight (SPI September) +12 to 5,249
- AUDUSD: 0.7157
- EURUSD: 1.1170
- USDJPY: 121.69
- GBPUSD: 1.5405
- USDCAD: 1.3211
- Nymex Crude (front contract): $45.22
- Copper (US front contract): $2.3465
- Gold: $1,133
- Dalian Iron Ore (September): 446 (denominated in CNY)
- US 10 year bond rate: 2.18%
- Australian 10 year bond rate: 2.735%
– Now the news. In trying to answer exactly what the implications of Stanley Fischer’s words are, Raiko Shareef, BNZ’s Wellington-based forex strategist said that:
Investors seem more inclined to play the man (optimistic policymakers), rather than the ball (low inflation), and bid the USD higher on Friday night. The market continues to unwind the sharp gains that EUR and JPY saw through last week’s equity market plunge. We remain constructive on the USD into mid-2016, though we have pushed back our expectation of first US rate hike from September to December.
It’s difficult for FX traders and bond markets to both be right at the moment. However, if the US dollar is bid because the Fed will hike in a couple of weeks, then interest rate traders, who have largely priced the chance of a hike out, are in for a world of pain. That will also hurt stocks, or at least it has a high probability of hurting them, because it will come as a shock if the fed does indeed act. Equally though, bond markets might be right, the jury is out and analysts reports floating through my inbox this morning are mixed. The NAB says they aren’t much the wiser, Soc Gen said that Stanley Fischer was “dovish” (less inclined to tighten), and so it goes.
– But, as the last week showed, markets are exponentially discounting new information as it is received at the moment as traders attempt to read the Fed, Chineses growth, global economy and stock market overvaluation tea leaves.
That makes this week’s huge data calendar – which ends with US non-farm payrolls on Friday and includes an RBA board meeting, Australian GDP, and an ECB meeting – vitally important and potentially volatile. Here’s our diary of all the key events and a little look back on last week’s volatile trading.
– Speaking of data Ray Attrill, the NAB’s Sydney-based co-head of FX strategy, wrote this morning that on Friday night in the US, “July US core PCE deflator rose by just 0.07%, so +0.1% rounded, reducing the y/y rise to 1.2% from 1.3%, its lowest level of the year. So another argument if needed for delaying Fed lift-off beyond September. Personal income rose by 0.4% as expected and personal consumption expenditure by 0.3%, below the 0.4% expected. The final University of Michigan August Consumer Sentiment index fell a point to 91.9 from the 92.9 preliminary and below the 93.0 expected.”
– On commodity markets, CommSec’s chief economist Craig James highlighted that the big move higher in world oil prices was dominated by “short covering” which was assisted by “supply fears”. “There was fresh violence in Yemen, Tropical Storm Erica headed for Florida in the Gulf of Mexico and there were refinery outages in Rotterdam,” James said in his morning note. He highlighted that “over the week Brent rose by US$4.59 or 10.1% and Nymex rose by US$4.77 or 11.8%”. Indeed, but what the week on week move masks however is that Nymex crude, at $45.22 is around $8 off last week’s low.
– All of which leaves local traders on the ASX with a mildly bullish bias to follow on from Friday’s 0.58% rally. Iron ore had another good night Friday, the energy sector should benefit and the buyers like the banks again. But, the reality is that moves in Asia today and the US and Europe tonight are likely more important than anything that be self-generated here in Australia today. Of course, the release of partial indicators of Australia’s Q2 GDP (Wednesday) are important with company profits and inventories to be released at 11.30 AEST today.
– So, on the data front we get those two partial plus the release of the TD Securities monthly inflation gauge, private sector credit, and HIA new home sales. Building permits and the ANZ activity and business confidence are out in New Zealand. Japan releases housing stats and construction, retail sales are out in Germany, Greece and Italy. CPI is also out in Italy as well as the EU more broadly. Portuguese GDP is out and in the US, it’s Chicago PMI.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
The high momentum rally in oil prices over the last 2 days, looks as though it’s got further to play out after 2 months of relentless declines.
This means energy stocks are likely to be a feature of today’s trading. Along with the oil price, they also have potential for a solid (although possibly temporary) corrective bounce. Santos has been amongst the most beaten up and is in state of flux with a new CEO yet to be appointed and the possibility of asset sales to shore up its balance sheet.
Looking at the chart for clues about how far a corrective rally in Santos could extend, the possibilities include:
• $6.08 which is the 50% retracement level and 20 day moving average
• $6.40 which is the 61.8% Fibonacci retracement
• $6.90. Santos made several lows around this price before finally breaking down making it a significant resistance level now. The 78.6% Fibonacci retracement level also supports this as a potential resistance zone.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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