A quick recap:
Janet Yellen and her colleague Bill Dudley put the Fed’s potential December rate hike front and centre overnight, which has knock stocks a little lower (Dow down 0.4% and S&P 500 off 0.11%) and driven US rates to their highest levels since September. The two-year is back up at 0.82%.
That hasn’t hurt futures on the ASX too much at all though, with the December SPI200 futures up 3 points after yesterday’s see-saw price action left the ASX physical market up just 3 points. That suggests a relatively quiet day. But that hardly ever happens, so the action might be intra-market rather than in the index. With crude reversing some of its strength last night, iron ore is in the doldrums. Certainly some traders will be wondering if the CBA can break up through $78.00/20.
Back to Yellen and the Fed now and the Fed chair confirmed to the House Financial Services Committee that December is live while the data holds up. “Moving in a timely manner, if the data and the outlook justify move, is the prudent thing to do,” Yellen said.
The NAB’s David de Garis reports this morning that “this saw markets move to price in a high probability of a December move, increasing the chances from 50% up to 60% towards the end of New York session, the big dollar (US) appreciating as a result”.
Indeed it did – the Australian dollar is down 0.5% to 0.7150 this morning and the euro has lost another per cent and is back at 1.0860 this morning on track for a test of support at 1.08 and if that breaks, 1.05. Sterling is quiet, the yen is heading lower, USDJPY at 121.50ish, while the Kiwi is the big loser overnight, down 1.11% as traders and investors around the globe apparently desert it over fears about El Nino.
On commodity markets, as mentioned above, Nymex crude fell 2.88% to $46.52, copper dipped a little bit to $2.32 while iron ore is back under 350 yuan on the Dalian exchange, but US futures have rallied. Gold is under pressure again at $1107.
On the data front, last night NAB’s deGaris said: “Dollar strength was given some impetus by a stronger than expected US ISM nonmanufacturing report, up from 56.9 to 59.1, reflecting what could only be described as a vibrant US service sector, encompassing a near six point gain in the new orders index to 62 and the employment component pushing up further from 58.3 to 59.2.”
That’s huge. All we need is non-farm payrolls on Friday night to print strong, even at market, and a December Fed hike will be getting close to a near certainty. Unless of course the market prices it, gets scared and goes into a funk, in which case the Fed might postpone it again.
Today we have RBA governor Stevens speaking at 9.25am, the BoJ minutes are out at 10.50am and then RBA Dep Gov Lowe speaks/panel at 12pm. Tonight we have German factory orders, EU retail sales and then the all important Bank of England MPC vote. That will be followed with a speech by governor Mark Carney. Mario Draghi is also speaking tonight.
In the US we get jobless claims and a speech from Fed vice chair Stanley Fischer.
The overnight scoreboard (8am AEDT, NB: US MArket close is 8am AEDT):
- Dow Jones Industrials -0.34% to 17,858
- Nasdaq Composite -0.15% to 5,137
- S&P 500 -0.45% to 2,100
- London (FTSE 100) +0.46% to 6,412
- Frankfurt (DAX) -0.97% to 10,845
- Tokyo (Nikkei) +1.3% to 18,926
- Shanghai (composite) +4.29% to 3,458
- Hong Kong (Hang Seng)+2.15% to 23,053
- ASX Futures overnight (SPI December) +1 to 5,217
- AUDUSD: 0.7147
- EURUSD: 1.0857
- USDJPY: 121.53
- GBPUSD: 1.5383
- USDCAD: 1.3154
- Nymex Crude (front contract): $46.49
- Copper (US front contract): $2.32
- Gold: $1,107
- Dalian Iron Ore (January): 349 (denominated in CNY)
- US 10 year bond rate: 2.23%
- Australian 10 year bond rate: 2.74%
– Something interesting is going on with the Australian dollar, according to Westpac. Rich Franulovich, their New York currency guy, says that real money is back and buying in “eye-catching” catching amounts. I’ve written it up here. The chart which highlights the big turnaround after a year or two of selling is amazing.
– Also interesting are comments from Stanley Druckenmiller channelling his inner Greg McKenna. Okay, maybe not. But I hold the view that modern capitalism for the past 30 years at least in the post Volker/87 crash era is all about lowering interest rates, stimulating spending and borrowing which drags demand from the future. You get to a point where you run out of rope though, and that’s what Druckemiller said overnight.
“All you do [when you keep interest rates at 0% for this long] is you’re pulling demand forward today. This is not some permanent boost you get, you’re borrowing from the future.”
He said he thought the Fed was making a mistake keeping rates so low, and that the chickens would come home to roost, but admitted he doesn’t know how it will all play out.
You can find his comments and a video in Myles Udland’s piece here.
– But while Druckenmiller reckons the Fed needs to be raising rates and sending the right signals, California congressman Brad Sherman reckons that God’s plan is for Janet Yellen and her colleagues on the FOMC to raise rates next May.
Yep, God’s plan. I get his logic but, gee whiz. Here’s the link.
– When you are done reading BI there is a good story by John Authers over at the FT which highlights the real risk of the Fed’s lift off if it occurs in December. That’s because “consensus is now that the Federal Reserve raising rates is not as big a deal as many fear. This means that a rate rise followed by an accident in the fixed-income market — which many observers fear is a real possibility — could cause serious damage in other markets, as investors are not prepared for it.” Gated, but here’s the link.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Domino’s Pizza (DMP: ASX)
Like Blackmore’s, Domino’s is a reminder that spectacular success is possible in today’s changing world. There can be big rewards for companies that get it right in terms of technology and/or emerging market demand.
Yesterday, Domino’s upgraded their profit guidance for F16. They are now predicting 25% growth over last year. Sales have been strong for a whole lot of reasons. One has been that customers love the new GPS tracker technology which makes it possible to track the progress of orders from the “store to the door”. Domino’s has a raft of technological innovations in progress including the ability to order via Apple or Android smart watch in as little as two taps.
The stock chart looks as though it might be in the process of forming a pennant or flag formation. This is a bit of a work in progress as there has not yet been a second peak to confirm the top trend line. However, if the pattern does form up it could be useful. A break through the top would be bullish while a breach of support would be a negative sign.
The stock is trading at 51 times forecast earnings so it’s not cheap. Patient, long term investors might be interested in keeping a watch on the 200 day moving average. This zoomed in chart doesn’t show it but it’s done a pretty good job of defining Domino’s spectacular long term uptrend. The last time the stock returned to it was at the beginning of this year.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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