– Yuk, what a night. It’s a sea of red out there on global stocks markets as the weakness in Shanghai moved west with the Sun to see all of the globe’s major stock markets substantially lower this morning. The US dollar is also lower which has lifted the Aussie even further off yesterday’s lows but the Euro and other forex rates are higher. A weaker US dollar helps commodities, and gold and copper are higher while Crude has bounced nicely off support overnight. The worrying thing in all this? 10 year bonds sold off with some massive moves in Europe.
– On the data front last night the massive blowout in US trade deficit for March to $51.37 billion from $35.89 billion in February and the market’s expectation of a deficit of $41.20 billion means that all other things equal US Q1 GDP growth will be revised lower into negative territory. This doesn’t threaten the Fed’s expectation of a growth rebound because it’s largely about the port dispute. Commsec chief economist Craig James says the forward looking data is not terrible. “The ISM services index rose from 56.5 to 57.8 in April, above forecasts centred on 56.2. And weekly chain store sales were up by 1.6% on a year ago, ahead of the 1.4% annual gain in the previous week.” That combination worried stock and US dollar bulls.
– Bond markets had a big night. In the US the 10 year finished at its highest level in 2 months and the 30 year touched its highest level for the year. You can see the capital losses in Europe for yourself. German 10’s, back above 0.5%. I know I’m banging on about it a lot at the moment but the big sell-off in bonds is a clear and present danger to global markets. Primarily because the sell-off has no observable catalyst. That worries me because generally, almost always, its interest rate/bond/credit markets which blow up other markets up so I am watching closely this continued sell off in global bonds. The reason is the capital losses on these bonds are huge. At some point that will bite, if the sell-off continues.
– Commsec chief economist Craig James told Business insider this morning there was “no standout factor overnight” which caused the sell-off in bonds but “there are worries about Greece but also confusion about US interest rates.” Speaking of Greece, as I wrote in my Go Markets Asian Trading Wrap yesterday, there was a story in the FT (gated) which says “the IMF takes a hard line on aid as Greek surplus turns to deficit”. The problem with this is the IMF wants Europe to forgive some of the Greek debt –- something they appear both unwilling and unable to consider. That means Greece could really go pear shaped.
Here’s the overnight scoreboard (7.30am AEST):
- Dow Jones down 0.79% to 17,928
- Nasdaq down 1.55% to 4,939
- S&P 500 down 1.18% to 2,089
- London (FTSE 100) down 0.84% to 6,927
- Frankfurt (DAX) down 2.51% to 11,327
- Paris (CAC) down 2.12% to 4,974
- Tokyo (Nikkei) closed
- Shanghai (composite) down 4.06% to 4,298
- Hong Kong (Hang Seng) down 1.31% to 27,755
- ASX Futures (SPI June) -49 to 5,755
- AUDUSD: 0.7940
- EURUSD: 1.1186
- USDJPY: 119.86
- GBPUSD: 1.5171
- USDCAD: 1.2065
- Crude: $60.67
- Gold: $1,192
– The local stock market was hammered along with global equities overnight and futures are indicating the ASX 200 may be about to retest the bottom of its 5,743-6,000 range today after the lead from the US. We know the top of the range is solid but the technician in me suggests the bottom may not be quite as solid.
– In Asia yesterday Shanghai stocks fell heavily amidst more rumours about stamp duty on stocks and news there had been some margin changes at brokerage houses. The important thing about yesterday’s move is the Shanghai Composite broke its 2 month uptrend. Traders will have noticed that.
– On commodity markets Dalian iron ore has really ripped higher over the past few trading days after VALE announced its production cuts. Yesterday the heavily traded September contract was closed at 430.5 but it’s up another 11 overnight to 441 which is the highest level since March 25. That should really help Australian miners today and perhaps rescue the index from a break of support. On energy markets Nymex Crude bounced perfectly off support and the front contract closed up at it’s highest level since early December 2014.
– On the data front in Australia we get the release of March retail sales and apparently the HIA new home sales (apologies I had them in yesterday). In New Zealand we get important employment data while around the world we get HSBC and Markit services PMIs. For most of the developed world services dominate economic output. Even in China its 48%, so these data points are very important for the outlook. Tonight in the US we get the ADP labour report in the lead up to non-farms on Friday.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
ANZ helped allay market concerns about the banking sector yesterday; producing a solid first half result after Westpac’s soft numbers unveiled on Monday. ANZ’s result was assisted by good growth in it is global markets operation but also by a solid increase in domestic housing loans.
However, its chart outlook is pretty similar to the Westpac one I featured yesterday. Yesterday’s result saw ANZ make an initial move away from the support of its 200 day moving average and the 61.8% Fibonacci retracement level. It managed to partially fill the gap created last week. However failure to move through the top of this may yet be a sign of weakness
In a falling market and with the stock yet to go ex-dividend, the key for this chart may be whether it can hold on to the support around the 61.8% retracement level. If it’s unable to do so, the 78.6% retracement just below $32 could come into play.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC