Quick Recap: Stocks went nowhere in the US last night even after Q2 GDP showed the economy was growing at 2.3% annualised pace and jobless claims continued their relentless advance. Europe did better, however, with every index I watch, except the IBEX climbing. That’s left SPI 200 September futures up 10 points this morning after the strong 0.81% gains on the physical market yesterday.
While stocks in the US didn’t appear to react to the GDP, the US dollar certainly did and the dollar index is up 0.5% this morning. That put downward pressure on the euro, Aussie, Kiwi and yen. Short term US rates rose as well, with the US 2-year up 4 points to 0.75%. Long bonds rallied, however.
On commodities, Nymex crude fell back, as did copper and other base metals. Gold tumbled as well and iron ore was off more than 1%.
The overnight scoreboard (7.08am AEST):
- Dow Jones -0.03% to 17,745
- Nasdaqup +0.33% to 5,128
- S&P 500 flat 2,108
- London (FTSE 100)+0.57% to 6,668
- Frankfurt (DAX) +0.4% to 11,257
- Tokyo (Nikkei) +1.08% to 20,522
- Shanghai (composite) -2.2% to 3,705
- Hong Kong (Hang Seng) -0.49% to 24,497
- ASX Futures overnight (SPI September) +10 to 5,623
- AUDUSD: 0.7289
- EURUSD: 1.0931
- USDJPY: 124.14
- GBPUSD: 1.5595
- USDCAD: 1.3002
- Crude: $48.45
- Gold: $1,088
- Dalian Iron Ore (September): 399
– Now the news.The US GDP was strong enough to edge the Fed even closer to its first interest rate hike. While the 2.3% annualised rate missed the 2.5% the market had expected, it was still a solid result. More importantly, Q1’s contraction in growth of 0.2% has been revised away to a 0.6% increase in US GDP for the first three months of the year. So the USA is growing again. Jobless claims rose a little less than forecast to 267,000 from last week’s 40-year low. As our old colleague Joe Weisenthal tweeted – jobless claims have been relentless.
They are also completely incompatible with zero per cent interest rates.
In Europe, German unemployment printed 6.4% as expected while CPI was a little lower than expected at 0.2% in July with a 0.2% print for the month and year on year.
– That strength in US data and lack of inflation in Germany helped the US dollar on forex markets. But the initial strength, which drove the euro briefly under 1.09 reversed a little. Forex markets at present are at a difficult and interesting juncture with much priced into the market. Technical factors and shorter term moves are the key drivers at the moment. Some currencies, like the Aussie dollar, are close to six-year lows while the Canadian dollar is back near-decade lows. The Fed is key which means next week’s data dump – which will end with US non-farm payrolls – is going to be huge for forex traders.
– Chinese markets had an interesting day yesterday. Stocks were flat to up for most of the day until a big swoon, mini crash, at the end of trade. That left the index down 2.19%. In many ways it was the reverse of the previous day’s stellar rally and likely reflects some traders exploiting a lack of liquidity near the close. So it’s just traders being traders. But as David Scutt wrote yesterday afternoon, “Given their recent track record, Chinese stock regulators will probably pin the decline on malicious short-selling initiated by mysterious foreign investors.”
– On the ASX, another good day yesterday looks destined to be followed by more positivity again today if futures are giving the correct lead. But given the energy stock rally yesterday was likely sourced in the big bounce in crude the night before, we might see a little reversal today. Likewise with iron ore down again, the big miners (who still managed to rally slightly in London overnight) could come under pressure.
– Speaking of commodities, oil had one of those nights that prove trying to pinpoint what was the “real” driver of move is fraught with danger. Some say this morning that crude was lower because the stronger US data offset the big drawdown in stocks. But when coupled with the reversal in base metals, which were off between 0.8% and 2%, it looks more like someone had an axe to grind in the complex.
– On the data front today, we get PPI and private sector credit in Australia, CPI in Japan and then retail sales in Germany tonight. We also get EU CPI tonight and in the US, the Employment Cost Index will be more closely watched than usual.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Breville Group (BRG.ASX)
Conglomerate manufacturer, GUD Holdings kicked off the earnings season with a good upside surprise and forecasts of more to come next year. This produced an 11% rally in the share price yesterday.
Cost savings, especially relating to freight, logistics and warranty costs were the principle drivers of the improved results. But one of the key upside surprises was in its Sunbeam appliances division which recorded 3% sales growth. Sunbeam’s new joint venture arrangement with US group Jarden has given it access to a wider product range, including the Oster blender which has been a real success.
It seems this has the market thinking it may have been too pessimistic about Breville Group whose kitchen appliance products are distributed internationally. Its biggest markets are in Australia and the US.
Breville’s share price has risen 9.5% over the past 2 days. The rally stopped yesterday around the 200 day moving average but the stock has already been restored to a valuation of around 16 times currently forecast earnings for F16. This raises the stakes for its own profit report which is slated for 21 August.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC