Quick Recap: With China out, the focal point for traders last night was ECB president Mario Draghi and his press conference after the ECB board meeting. Draghi didn’t disappoint, pouring a bucket of cold water on the euro bulls when he downgraded GDP forecasts for the region and warned that deflation could return to the continent.
That didn’t hurt European stocks though, because they were both chasing the previous night’s rally in the US while the pledge from the ECB that it would continue its QE program beyond September 2016 if necessary more than offset any worries about growth. That’s QE infinity ECB-style. But interest rate differentials are important in forex land, so that pledge hurt the euro, which was hammered back under 1.11 at one stage last night.
On US stock markets, Europe was heading home when US stocks started sliding from their highs. The Dow and S&P were marginally in the black at the end of trade but the Nasdaq slipped into the red, losing around a third of a per cent. That meant that the ASX SPI 200 futures are up 17 points this morning but that’s a little under 50 points lower than the high overnight. With the big 4.4% loss on the physical so far this week, could it be a better day for stocks here in Australia?
On forex and commodity markets, things are a little more settled than they have been. The Aussie is clinging above the 70 cent region again this morning. Perhaps someone has an option strategy worth protecting or perhaps it’s simply that short term traders are just very short (sold) Aussie. Crude rallied above $48 and sold off again and is back in the $46 region. Gold is lower and copper had a nice move up to $2.38. Or maybe the base is in for commodities, as some commentators are suggesting.
The overnight scoreboard (7.17am AEST):
- Dow Jones +0.14% to 16,375
- Nasdaq -0.35% to 4,733
- S&P 500 +0.12% to 1,951
- London (FTSE 100) +1.82% to 6,194
- Frankfurt (DAX) +2.69% to 10,318
- Tokyo (Nikkei) +0.48% to 18,182
- Shanghai (composite) closed
- Hong Kong (Hang Seng) closed
- ASX Futures overnight (SPI September) +17 5,021
- AUDUSD: 0.7008
- EURUSD: 1.1123
- USDJPY: 120.06
- GBPUSD: 1.5253
- USDCAD: 1.3180
- Nymex Crude (front contract): $46.64
- Copper (US front contract): $2.38
- Gold: $1,124
- Dalian Iron Ore (September): 465 (denominated in CNY)
- US 10 year bond rate: 2.16%
- Australian 10 year bond rate: 2.68%
– Now the news. Markets were a little quieter last night with China out. And, with non-farm payrolls looming so large in traders’ minds today, we could have another quiet days trade in Australia, and Asia more broadly, while we wait for the release of the data at 10.30pm AEST. Given the importance of the release it is worth noting, as NAB’s co-head of global currency strategy pointed out this week, August non-farms have undershot expectations for the past three years with an average below 180,000 which has subsequently been revised up to an average around 220,000. That’s important because the market is expecting 220,000 for tonight’s print and this single piece of data is going to be critical in driving the markets’ thoughts on whether the Fed will, or won’t, increase rates in a little under two weeks time.
– Goldman Sachs has no such fears, believing that tonight’s release could be huge. Myles Udland from BI US reports this morning that “In a note to clients ahead of the report, Goldman economist Chris Mischaikow writes that the availability of jobs is a factor pointing towards Friday’s August jobs coming better than expected.”
Here’s the chart supporting their idea:
– If you are looking for a bit more detail on what Draghi had to say, Westpac’s New Zealand based strategist Imre Speizer said this morning that:
The ECB left policy unchanged but downgraded its growth forecasts by 0.2ppts and its HICP inflation forecasts by 0.4ppts. Draghi said since developments since 12 August imply downside risks to even these latest new forecasts, adding purchases will go on “until the end of September 2016, or beyond” – a slight tweak to the existing language conveying a strong message around the willingness and capacity to ease more. There was a caveat, though – they’ve yet to decide if the lower inflation will be transitory or persistent. The share limit on ownership of any single bond was raised from 25% to 33%, reassuring markets the ECB can fulfil its current QE objectives as well creating the capacity for expansion if needed.
No wonder the euro bulls didn’t like that.
– Elsewhere on forex markets, the Aussie dollar performance is interesting as it clings so desperately to the 70 cent region. My sense is there is some sort of structure below these levels keeping the Aussie up as the bank/trader/fund protects their position. In a note yesterday, Westpac highlighted also that it could simply be that the Aussies weakness which took it under 70 cents briefly this week is excessive. Here’s what Westpac’s Global Strategy Group said:
AUD/USD has been ‘living in the seventies’ for most of this year and given nerves over China and soggy Australian data, has now traded with a 0.69 handle. Fresh post-2009 lows are likely but iron ore prices suggest AUD bearishness is a little excessive.
– On the data front today, there is nothing material in Australia or Asia and only factory orders in Germany are noteworthy in the lead-up to non-farms at 10.30pm AEST. Canadian employment data is also out at the same time tonight.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Recent press stories have reported on the possibility that Oil Search might be a takeover target as industry players with strong balance sheets look to take advantage of the opportunity created by the big drop in market value over the past 12 months. The press stories have centred on Woodside as a potentially interested buyer despite the hurdles seemingly created by the Papua New Guinea Government’s 10% shareholding in Oil Search.
Takeover potential was presumably behind yesterday’s 3.5% rally in Oil Search on a dismal day for the broader market. Oil Search is approaching chart resistance between about $7.20 and $7.50 and this might prove a test of just how much store the market is prepared to put in the notion that it could be a target.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC