Quick Recap: Stocks in the US were mildly lower again overnight with Apple falling to its lowest level since January, while Netflix hit an all-time high. Europe was also lower with the exception of Frankfurt, which managed to eke out a small gain.
However, the most important event of the night was probably when Atlanta Fed president Dennis Lockhart added his voice to the chorus calling for a rate hike next month. While it’s not exactly a shock it helped propel the US dollar higher, Euro back under 1.09, and saw the recent interest rate rally reverse course in the United States.
But the Aussie dollar managed to hang on to most of its post retail sales and RBA gains, which has driven it sharply higher on the crosses. The Canadian and Kiwi dollars are lower, even thought crude oil, gold, copper and other base metals were all higher.
The overnight scoreboard (6.47am AEST):
- Dow Jones -0.27 to 17,550
- Nasdaq -0.19% to 5,105
- S&P 500 -0.22% to 2,093
- London (FTSE 100) -0.03% to 6,686
- Frankfurt (DAX) +0.11% to 11,456
- Tokyo (Nikkei) -0.14% to 20,520
- Shanghai (composite) +3.11% to 3,948
- Hong Kong (Hang Seng) -0.02% to 24,406
- ASX Futures overnight (SPI September) -17 to 5,621
- AUDUSD: 0.7376
- EURUSD: 1.0883
- USDJPY: 124.34
- GBPUSD: 1.5561
- USDCAD: 1.3182
- Crude: $45.92
- Gold: $1,087
- Dalian Iron Ore (September): 421.5
– Now the news Dennis Lockhart’s comments came in a Wall Street journal interview. The key comment appears to have been an assertion that there is a high bar to do nothing on rates. “I think there is a high bar right now to not acting, speaking for myself,” he said, adding “It will take a significant deterioration in the economic picture for me to be disinclined to move ahead.” Rates are rising in the US it seems, and soon.
– Lockhart’s comments stopped the US bond market rally in its tracks. The 2 year bond was 0.6% higher to 0.73% while the 10 year bond sold off 7 points to rise to 2.22%. That didn’t hurt continental bond markets, however, with only small moves. German 10 year Bunds closed at 0.6% while UK 10 year gilts closed at 1.90%. Australian 3’s were up 3 points to 1.98% and our 10’s were up 4 points to 2.79%.
– Lockhart’s comments had a big impact on the US dollar too. It is conventional wisdom in forex markets that the Fed rate hike will drive the US dollar higher. So Lockhart’s comments reinforce that time is running out until the beginning of the rate hike cycle. That gave the dollar bulls some succour. That drove the Euro down under 1.09 and the Canadian dollar to another 11 year low as USDCAD briefly moved up to 1.32. The Aussie dollar managed to climb above 0.74 cents at one point last night before the US dollar strength knocked it back. But it has surged on the crosses and this morning is sitting at 1.1278 against the Kiwi and 91.72 against the Yen.
– Looking at stocks and the US market was all over the place before the slightly weaker close. The S&P 500 has now been down 8 of the last 11 days. Even though this price action simply reinforces the 4 month trading range, the fact that Apple — one of the share market leaders — is under pressure, looking comfortable below its 200 day moving average for the first time since August 2013, suggests the market really is starting to struggle. That’s important in the context of the rumbling concern growing about the outlook for stocks.
– Locally, after the ASX 200 bucked the lead from offshore again yesterday with a 0.33% rally, futures traders are pointing to a marginally lower open this morning of around 17 points. That’s interesting given the rally in oil, base metals and iron ore overnight. Commsec’s Craig James this morning said mining shares were firmer in London with “BHP Billiton up by 1.9% and Rio Tinto up by 1.6%.” So the day ahead may not necessarily pan out as the futures suggest.
– In Asia yesterday Shanghai stocks ripped higher in late trade to finish up 3.69%. It reinforces another bounce of the technically important 200 day moving average, which traders will continue to watch closely. That’s if there are any traders left after the CSRC banned intra-day shorts as well as outright shorts. Seriously, this is no longer a market. And the Chinese reckon they are going to internationalise the RMB.
– Some commentators are saying oil rose because Chinese stocks rose. That’s possible but a very long bow given its the weakness of the economy, not stocks, which is the pointer to oil demand in the future. That said, crude has been under pressure for some time and technically it might just be “time for a bounce”. Gold remains under pressure but copper and other base metals lifted.
– On the data front today employment and labour costs are out this morning in New Zealand. In Australia it’s the AiGroup performance of services index and Markit services PMI’s around Asia and the world today. In the US its trade and the ADP employment as a lead on non-farms Friday. ISM non-manufacturing and EIA crude stockpiles are also out.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
It was definitely a case of “Go Harvey, Go” on the share market yesterday. The stock finished up 6% but was up 10% at one stage. 7.6 million shares changed hands which is more than 3 times the average of the last month. Something was going on.
Harvey Norman has staged a great recovery from a low of $1.72 3 years ago. It’s been helped by the housing boom and associated appliance sales; low interest rates and , more recently, the tax break on depreciation for small businesses. Yesterday’s much better than expected retail sales data reflected the latter and should lead to a good profit report from Harvey Norman.
There’s an argument to say HVN is getting pretty fully valued now though. Yesterday it closed at around 18 times forecast earnings for next year. It’s possible that analyst forecasts are too conservative given recent retail sales but even factoring this in it’s a good valuation.
Charts suggest others may be thinking the same way. Yesterday’s candle had a very long wick, meaning the market finished well below its high in a sign of flagging buying momentum. It also stopped neatly at a Fibonacci level where CD = AB x 1.27 as shown on the chart.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC