A quick recap: Markets are continuing to heal from the acute weakness of August and nervousness of September. Stocks are rallying, the Aussie dollar is back above 72 cents, commodities are higher and emerging markets are recovering.
Ray Attrill, the NAB’s co-head of global currency strategy summarise the moves in emerging and forex markets this morning saying, “The rapid reversal in post-August 11 Emerging Market and commodity currency weakness continued with a vengeance overnight. The Malaysian Ringgit is 3.6% up on this time yesterday and the Indonesian Rupiah 3% higher. At 0.7211, AUD/USD is now 4.1% above its recent (Sep 24) lows, and NZD at 0.6612 some 6% higher over the same period.”
He says that a large part of the reversal is “predicated on a view that China will now maintain a relatively stable CNY through the rest of this year at least and following strong verbal commitments by President Xi during his recent U.S. visit. And, we’d also note, ahead of a likely IMF decision on China SDR inclusion (likely next month).”
The recovery in sentiment is consistent with what we usually see in markets. We had the crash in August, we had multiple tests toward the lows in September which held and now traders are looking for topside resistance.
It looks like they found some in oil last night which reversed off the range top. Likewise stocks in Europe tanked in the last hour of trade overnight. Certainly the UK, German and French indexes ended in the black but it could have been a much stronger day. Some of that weakness was probably associated with the US mid-morning swoon which reversed with stocks climbing steadily from their lows around 11am to close with gains of a little under 1%.
That all adds up to what looks like another good days trade on the ASX today. The December SPI 200 futures contract rose 32 points last night to 5,221 after the 0.6% rally on the physical yesterday. BHP and Rio both did well again in London trade and even though crude reversed a little from its highs the energy complex is still strong relative to the lows and a week ago.
Elsewhere on commodity markets base metal prices were stronger with lead up 3.1%, zinc 2.2% higher and copper up 0.64%. Iron ore was up a little as well.
In data news the US housing sector is powering along it seems. Craig James, CommSec chief economist, reports this morning that the “CoreLogic HPI home prices increased by 6.9% in August compared with 12 months ago. The US MBA mortgage applications index lifted to 534.2 – the highest level in 8 months.” But consumer credit growth undershot expectations with a print of $16 billion against the 19 billion expected.
On the data front in Australia there are no major economic data to be released. In Japan we get a raft of second tier economic data including foreign investment, BoJ survey, and machinery orders. German trade is out tonight along with a Bank of England rates decision. In the US, we get minutes from the last Fed meeting.
China is back today, Shanghai should have a good rally.
The overnight scoreboard (7.46am AEST):
- Dow Jones Industrials +0.73% to 16,912
- Nasdaq Composite +0.9% to 4,791
- S&P 500 +0.8% to 1,995
- London (FTSE 100) +0.16% to 6,336
- Frankfurt (DAX) +0.68% to 9,970
- Tokyo (Nikkei) +0.75% to 18,322
- Shanghai (composite) Closed – last at 3,053
- Hong Kong (Hang Seng) +3.13% to 22,515
- ASX Futures overnight (SPI December) +32 to 5,221
- AUDUSD: 0.7206
- EURUSD: 1.1236
- USDJPY: 119.97
- GBPUSD: 1.5316
- USDCAD: 1.3024
- Nymex Crude (front contract): $48.07
- Copper (US front contract): $2.3695
- Gold: $1,145
- Dalian Iron Ore (January): 366.5(denominated in CNY)
- US 10 year bond rate: 2.07%
- Australian 10 year bond rate: 2.67%
In other news.
– This one from the FT caught my eye this morning. The author argues that the “defensive strategy can be a risky one.”
With the International Monetary Fund warning on Tuesday that global growth will be the slowest since the financial crisis, markets are pricing in a relatively bleak outlook with worries centred firmly on the Chinese economy and the potential effects of a rise in US interest rates on emerging markets.
Indeed, the S&P 500 is still trading below its 50-day, 100-day and 200-day moving average and about 7 per cent below its peak before the summer sell-off in August. Defensive US stocks have also outperformed the wider indices, while cyclicals have sharply underperformed.
A sustained improvement in sentiment, though, could leave defensive fund managers vulnerable as overcrowded trades can unwind quickly, leaving investors who have put their faith in so-called safe stocks nursing heavy losses and bruised egos.
Yep, it could. The key here of course, as you’ll read in Business Insider and elsewhere, stock investing is for the long run and the points made are good ones. But, from a trading point of view the article points to the balance of risks with lots of bad news priced into the markets.
All we need is a not bad earnings season in the US and we could be off to the races with the S&P and other indexes leaping higher.
– Speaking of earnings season, the FT’s excellent John Authers reckons we might all need to hold tight because the strong dollar and lack of guidance could make it a bumpy ride.
– The rally on oil markets came to an abrupt halt overnight. News that US stockpiles have grown more than expected saw previously ebullient oil traders hit the sell button. Of course the price of the front Nymex crude contract is still above $48 a barrel this morning – so it’s not exactly weak – but as you can see in the chart below from a trading perspective it’s a “failed break” of the current trading range.
And now from CMC Markets’ Michael McCarthy for today’s Stock of the Day
Precious – Platinum Asset Management
Platinum Asset Management (PTM) is a former market darling. The hot ardour that drove PTM to its all time high earlier this year cooled significantly following the 2014 H2 results, reported in February this year. A share price now below $7 may see investors re-kindling the love affair.
The last half of 2014 blotted PTM’s almost spotless record, showing a 23% fall in performance fees and a flat profit. This nasty surprise wrought significant changes in analysts’ estimate of future earnings, and saw valuations smashed. While investors and analysts have a passion for smoothly rising earnings, the messy reality of life is that markets and profits regularly depart from these straight lines.
Investors backing PTM as an alpha generator may therefore see the current pullback as an opportunity. The share price is sitting well below the long run averages, reflecting the downtrend this year. However, yesterday’s plunge saw PTM pull back to its shorter moving averages, potentially putting it in the buy zone.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC
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