Quick Recap: Stocks around the globe finished mostly in the black overnight with European markets finishing near the highs. Across the Atlantic, US stocks drifted toward the close with the Dow sneaking into the red – just.
The data last night was impressive, with service sector PMIs in the US and Europe all printing stronger. In particular, in the US, the ISM services surged to a 10-year high, rising from 56 to 60. That hit interest rates a little in the US even though the ADP employment data disappointed, undershooting expectations with a 185,000 print.
Forex traders took the US dollar to a fresh 3-month high before it reversed course. That lifted the weight off the euro, but the Aussie and Kiwi underperformed with the Kiwi especially under acute pressure.
Commodities were back under pressure as well with crude, copper and other base metals falling. But iron ore continued to do relatively well and is higher again this morning. Gold is resting on support.
The overnight scoreboard (7.09am AEST):
- Dow Jones -0.06% to 17,540
- Nasdaq +0.67% to 5,139
- S&P 500 +0.31% to 2,099
- London (FTSE 100) +0.98% to 6,752
- Frankfurt (DAX) +1.57% to 11,636
- Tokyo (Nikkei) +0.46% to 20,614
- Shanghai (composite) -1.62% to 3,695
- Hong Kong (Hang Seng) +0.44% to 24,514
- ASX Futures overnight (SPI September) +14 to 5,626
- AUDUSD: 0.7354
- EURUSD: 1.0902
- USDJPY: 124.84
- GBPUSD: 1.5599
- USDCAD: 1.3175
- Crude: $45.16
- Gold: $1,085
- Dalian Iron Ore (September): 425
– Now the news. Yesterday was services PMI day. Mostly coverage focuses on the manufacturing PMIs but developed economies are for the most part services and even China will eventually end up with a bigger services sector. It’s just a function of economic development. Anyway, what we got from services PMIs yesterday was a raft of good news. ISM in the US surging to 60 was sensational. Here’s what Akin Oyedele from BI US wrote this morning:
America’s services industries are on fire. We got two data points: ISM’s non-manufacturing composite was reported at 60.3 for July, a ten-year high that topped the consensus forecast of 56.2. And, Markit US services PMI came in at 55.7 for July, beating the forecast for 55.2. New work rose at the fastest pace in three months and above the historical average. But confidence in the business outlook fell to the lowest level in two years. Still, Barclays economists wrote, “On balance, we view the broad-based nature of the improvement in the non-manufacturing ISM as encouraging and see the US service sector on a positive trajectory in Q3.”
Europe also printed some encouraging results.
– One thing worth noting is the strength of the UK economy. Overnight, BI UK’s Mike Bird wrote that Britain’s economic recovery just caught up with the United States and nobody even noticed. It’s worth a look and currency traders are certainly taking notice. Sterling has been firm at 1.55/56 for some time and Mark Carney, BoE governor, seems like he is not too far behind Janet Yellen when it comes to increasing rates. That makes his speech tonight, the MPC vote cut and the bank’s inflation important extremely import for global markets.
– Locally, after a day to forget for the banks which dragged the ASX 200 down 0.42%, futures are pointing higher this morning. The question for traders is do they have the gumption to take the index up and through the 5,700 level? It’s only around 25 points away but on the day that Australia’s employment report is out, it might be a bridge too far before the data. But depending on how the data prints, market expectations are around the 10-15,000 region, and will help drive stocks today. BHP and Rio having a solid night in London will also help in trade today.
– Employment will also drive the Aussie dollar which has stalled in the mid-73 cent region after the run above 74 cents on Tuesday night. Employment has been strong lately and most traders will be looking for a continuation of the trend. That’s a risk to the Aussie if the data doesn’t deliver. But it’s employment data so anything could happen. Elsewhere in forex land, the New Zealand dollar hit another 6-year low overnight which sees AUDNZD back up at 1.13.
– Volatility in Shanghai continued again yesterday with the Composite index down 1.6% after the previous day’s 3.7% increase. It will be killing authorities that even though they continue to find ways to ban selling and try to support the market, the overall tone is weak. Yesterday we learnt of China’s latest measures to target short sellers. Elsewhere in the region, Tokyo had a good day, off its highs but still not far from the recent highs. Traders will be watching what looks to be a top forming in the Nikkei, however.
– On interest rate markets, Westpac’s New Zealand-based strategist Imre Spiezer said: “US 2yr treasury yields rose from 0.72% to 0.76% – a four-year high, while the 10yr rose from 2.22% to 2.29%, only briefly dented by the ADP payrolls disappointment. Australian 3yr government bond (futures) yields ranged between 1.96% and 2.00%, while the 10yr yield rose from 2.83% to 2.90%.”
– The price action on crude was a tad strange last night with Nymex crude dropping below $US45 per barrel for the first time since March. Futures fell nearly 2% to as low as $US44.85. What’s weird about that, according to Akin Oyedele, is “before the plunge, the Energy Information Administration released its weekly data which showed that commercial crude inventories fell by 4.4 million barrels to 455.3 million last week”. This one might just be a US dollar move. Crude did recover somewhat. There is plenty of technical support just below current prices.
– It’s also worth noting the continued resurgence in iron ore on the Dalian exchange. Since the July low at 333, Dalian has had a relentless move and is now back at 425. That’s incredible and likely unsustainable. Time will tell though.
– On the data front, unemployment is the key highlight for Australian traders today. In Japan, we get the release of leading economic indicators while factory orders are out in Germany. It’s a huge night in the UK and forex and interest rate traders will be listening closely to what Mark Carney has to say as well as dissecting the MPC vote and the inflation report. In the US, jobless claims and the Challenger job cut report are the key highlights.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Apple’s stock price has been under pressure since its 3rd quarter earnings report which included a disappointing revenue outlook and lower than expected iPhone sales.
The chart outlook for the world’s largest stock does not look very encouraging in my view. If Apple does continue to correct it will be a negative for US stock indices.
The weekly chart below shows Apple breaking below its 40-week (200-day) moving average after completing a 5-wave advance. The 200-day moving average did a good job of providing supports for the last major uptrend with the stock remaining above it since July 2013. Completion of an Elliot 5-wave advance suggests we are now going to correct that whole move. At this stage the slow stochastic indicator in the box below the chart supports an outlook for lower prices, showing strong downward momentum while still above the oversold zone.
The first major support zone looks to be around $100-$104 which is still 10-13% below current levels. This zone includes the 38.2% Fibonacci retracement of the whole 5-wave advance as well as a couple of horizontal support lines.
From a chart trader’s point of view this looks like a stock that favours a strategic approach of selling into rallies at this stage.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC