A quick recap: Friday’s big miss of US non-farm payrolls appears to have reset both expectations about the chances of a Fed rate hike in 2015 and trader’s risk appetite. That’s seen stocks rally significantly in the US and Europe for the past two sessions. It’s also seen commodities rally and seen the bid tone come out of the Japanese Yen and the Euro.
Last night stocks in Europe exploded higher with gains of between 2.75% and 3.5% across the region. Glencore’s recovery continued with a gain of 20% last night after a solid rally in Asian trade, with reports that the GIC in Singapore is interested in some of its assets. It may not collapse or be a Lehman moment as many hypothesised, but Glencore may be a very different company in 6 or 12 months.
In the US, stocks weren’t quite so excitable, but the Dow and S&P 500 added around another 1.8% to Friday’s rallies of 1.2% or more. The market opened strong and stayed that way despite, or perhaps because services sector PMIs were a little weaker than expected.
That’s not to say services in the US are weak as Akin Oyedele from BI US highlights today: “The services sector is still robust. ISM’s non-manufacturing index for September came in at 56.9 (57.5 expected). And, Markit’s services purchasing manager’s index was 55.1 (55.6 expected). Although both indexes missed forecasts, they showed that employment grew, and they remain above 50, the border between expansion and contraction.”
Some reports say services are catching manufacturing’s cold. But whichever way you cut it the economy seems to have slowed a little.
The wash up for the ASX today is for another solid day of trade to follow on from yesterday’s 1.9% gain. Overnight futures traders have taken the December SPI 200 contract up another 66 points. The banks are likely to do well again and BHP and Rio were both up very strongly in London trade as commodities rallied.
Speaking of which there are noises that OPEC might be getting the band back together with Russia joining talks as oil producing countries look to wrest back control of the price. That helped Nymex crude rally 1.78%. The overall improved tone helped Dr copper have a solid rally as well and it’s back at $2.36 a pound, while the rest of the base metal complex did well and the CRB index saw commodity markets overall up more than 1%.
That’s helped the Aussie, Canadian and Kiwi dollars outperform their bigger rivals. The Aussie hasn’t exactly kicked on but it’s looking stronger on the crosses, except against the CAD, which rocketed from above 1.3450 last week all the way down to below 1.31 as risk appetite and crude’s rally encourages buyers.
Looking to the data today and it’s RBA day here in Australia. Most pundits expect the RBA to hold firm again, but we’ll all be reading the statement carefully to see if there has been any change in expectations of growth. We also see the release of trade data for August and the ANZ-Roy Morgan consumer confidence release. Offshore it’s factory orders in Germany, house prices in the UK and trade in the US tonight.
The overnight scoreboard (7.28am AEST):
- Dow Jones Industrials +1.85% to 16,776
- Nasdaq Composite +1.56% to 4,781
- S&P 500 +1.84% to 1,987
- London (FTSE 100) +2.76% to 6,298
- Frankfurt (DAX) +2.74% to 9,814
- Tokyo (Nikkei) +1.58% to 18,005
- Shanghai (composite) Closed – last at 3,053
- Hong Kong (Hang Seng) +1.62% to 21,854
- ASX Futures overnight (SPI December) +66 to 5,207
- AUDUSD: 0.7083
- EURUSD: 1.1182
- USDJPY: 120.42
- GBPUSD: 1.5144
- USDCAD: 1.3093
- Nymex Crude (front contract): $46.31
- Copper (US front contract): $2.3610
- Gold: $1,135
- Dalian Iron Ore (January): 366.5(denominated in CNY)
- US 10 year bond rate: 2.05%
- Australian 10 year bond rate: 2.59%
In other news. The volatility in stocks and other markets continues. At the moment it’s topside volatility so people are loving, rather than fearing, the big moves. But they are really just the other side of the volatility coin. So, as BI US colleague Elena Holodny wrote this morning, “make no mistake — the stock market might still be crashing.” Holodny points out that “People who are invested in the stock market might not want to hear this, but this crazy, multi-month-long volatility is not unlike what we see in the middle of a stock market crash.”
Indeed it is but for the moment the worm has turned for stocks and other markets. August’s lows were threatened, but held in September, and to a certain extent the sellers are exhausted with all the bad news appearing to have been priced in. That’s why we saw rallies last week even though Chinese PMI data was still weak. It just wasn’t as weak as expected. markets are alos very short S&P futures, the Aussie dollar and other version of what you might call the “risk trade.” So while prices can still head lower in time for the moment we are in the grips of what could become a very solid counter trend rally.
– From a technical perspective the price action supports the bounce theory with the S&P 400, as the global benchmark index, holding a massive support zone. Akin Oyedle from BI US also reckons that with earnings season coming up and analysts so pessimistic that Wall Street has set up the perfect excuse to push stock prices higher.
– Paul Tudor Jones is a hedge fund and trading legend up there in the Pantheon with the likes of George Soros. He’s been talking to Bloomberg TV about the Fed and what’s worrying them. He reckons that having worried themselves with super low rates and restarting the economy that the Fed is worried about global debt to GDP and the potentially instability and excesses that can lead to.
“I think they’re trying to probably insert back into the equation the fact that interest rates can rise and that people need to manage their balance sheets accordingly, particularly the Federal government,” he said.