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

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Good morning. Here’s the latest.

Manufacturing PMI – FX Street Economic Calender

– Stocks in the US and especially Europe are higher this morning with reports that the “not terrible” outcomes for German and EU manufacturing in particular, were responsible for the solid gains on the continent. The cynic in me suggests it might just be a little bit of post-holiday catch-up after a strong US performance on Friday night.

– Elsewhere the US dollar was stronger again with the euro lower and the Aussie dollar down in the run-up to this afternoon’s RBA announcement. Crude is down a little, gold won’t crash and is up 9 dollars an ounce while Dalian iron ore rallied hard even in the face of yesterday’s disappointing HSBC Chinese PMI. But the big story is the continuing sell-off on bond markets as rates rise. Last night the US, UK and German 10s were only up another 2 points to 2.14%, 1.87% and 0.39% respectively. But it’s the “vibe” in the market that is concerning.

– Indeed, extrapolating this theme of “watch them bonds” comes news from Warren Buffett’s weekend conference in Omaha that he thinks that “bonds are very overvalued” and once rates start to rise in the US, “stocks won’t look cheap.” His comment that “If interest rates normalise, we’ll look back and say stocks weren’t so cheap,” is as pointed as he gets. The Fed continues to signal they will begin “normalising” this year.

– Two indicators support the risks highlighted by Buffett and view expressed by Jim Paulsen that the current state of the US economy is incompatible with zero interest rates. The first is that Deutsche Bank economist Torsten Slok says Americans are running out of places to rent – that means a tightening in supply, extra demand and upward price pressure. The second thing I stumbled across on this morning trawl of the overnight news is Gluskin Sheff’s well regarded economist David Rosenberg saying that “Misery” in America is at a 56-year low. Like Australia, consumer confidence in the US doesn’t appear as strong as it could be but Rosenberg believes that consumers are likely “to play a lead role in a rebound over the remainder of this year”.

Here’s the overnight scoreboard (6.57am AEST):

  • Dow Jones up 0.26% to 18,070
  • Nasdaq up 0.23% to 5,016
  • S&P 500 up 0.29% to 2,114
  • London (FTSE 100) up 0.36% to 6,985
  • Frankfurt (DAX) up 1.44% to 11,619
  • Paris (CAC) up 0.7% to 5,081
  • Tokyo (Nikkei) up 0.06% to 19,531
  • Shanghai (composite) up 0.9% to 4,481
  • Hong Kong (Hang Seng) down 0.03% to 28,123
  • ASX Futures (SPI June) +30 to 5,836
  • AUDUSD: 0.7835
  • EURUSD: 1.1144
  • USDJPY: 120.11
  • GBPUSD: 1.5116
  • USDCAD: 1.2089
  • Crude: $59.01
  • Gold: $1,187

– Locally on the ASX200 yesterday, Westpac’s undershoot on earnings weighed on banking stocks and the market. Futures are pointing to a better open but it’s likely to be a day of two halves with the RBA announcement at 2.30pm likely to fuel the last 90 minutes of trade. Should the RBA decide to hold, any strength is likely to be reversed.

– In Asia yesterday, the HSBC Markit manufacturing PMI painted a bleak picture for this sector of the Chinese economy with the second quarter starting weak. That didn’t hurt Shanghai stocks fresh from a day off Friday, keen to play catch up with the US rally and with expectations of more stimulus as a result of the data growing. Services might only make up 48% of the Chinese economy but I’m looking forward to the services PMI (which was 53.1 last) tomorrow morning to see if this sector of the economy can do any heavy lifting in China.

– On forex markets, euro was lower but its the Aussie dollar forex traders will be focused on in Asia today. It seems this level in the low 78 cents has been assimilated as a fair place to hold pre-announcement. If the RBA passes on the cut and stays pat at 2.25%, expect the Aussie to rally around 1 cent against the US dollar. If they cut, as is widely expected, and 0.7775/85 breaks, watch out below.

– On commodity markets, Nymex crude has retested the break-out level for the second day in a row. It’s sitting at $59.02 this morning with traders watching for $58.80 to hold, or break. Gold is hanging in near the lows of the recent range and copper pulled back a little from recent strength and is at $2.9155 a pound.

– On the data front today, the RBA at 2.30pm dominates but we also have the Ai Group performance of services, ANZ weekly consumer confidence, HIA new home sales and ABS trade data this morning. Asia is quiet, Europe sees the release of PPI data for the EU and then in the US it’s trade and services PMI.

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

Westpac

It wasn’t a great day for Westpac shareholders yesterday with a soft profit result leading to a 3.5% decline in share price.

From a char point of view, two things are of interest about yesterday’s price action. The first is that the share price found support right at an obvious chart level. This consists of the early March peak and the 200 day moving average at $34.93.

The second is that the peak to drop decline in Westpac over the past week has been over 10%. This has taken the form of a near vertical drop with a couple of large price gaps in the mix. This is high momentum behaviour and the sort of “knife” that many traders might be wary of trying to catch, especially before the stock goes ex dividend. While there may be reasonable value in Westpac around current levels, from a strategic point of view it could pay to wait and see if the stock can form a bit of a base around this support zone and lose its downward momentum before testing the water.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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