– Really quite an amazing night’s trade with weaker than expected US data being shrugged off once again by the market. US industrial production for March printed (-0.6%) while there was a sharp fall in the Empire (New York State) manufacturing survey (-1.19 from 6.90 previously). Ray Attrill, NAB’s head of currency strategy said the misses were “blamed on the weather not being cold enough.” Always the weather as an excuse, enough with the weather. Attrill says in this data you can see the impact of the stronger US dollar and the “slump in US drilling activity.” He says the Philly Fed tonight will be more revealing.
– But, markets aren’t overly worried about the weak US data — we have the weather as an excuse — and there was a sea of green across US and European bourses. The Dow, Nasdaq and S&P are all above 18,000, 5,000 and 2,100 respectively. Perhaps the fact the beige book suggests only moderate growth in the US or that Wall Street’s top bankers are telling clients the Fed won’t raise rates in June are keeping stocks elevated again. In Europe Mario Draghi’s stout defence of ECB QE, even when assailed by a protester who jumped on his desk and dropped confetti on his head, likely helped European stocks head higher overnight.
– One thing worth highlighting is that Crude has broken up and through resistance with a big spike overnight. This was on the back of the EIA report which showed a lower than expected increase of 1.3 million barrels in weekly inventories. That’s the first downside miss in ages and has helped energy stocks on the ASX this morning. It also challenges the notion that deflation is about to become all pervading. Last night’s close at $56.39 was the highest level for the year. Veteran market watcher John Craig told clients in his morning note, “If oil can post consecutive settlements above $56 a barrel, technical indicators suggest oil may move to $65.” My own technicals agree.
Here’s the overnight scoreboard (7.50 am AET):
- Dow Jones up up 0.42% to 18,112
- Nasdaq up 0.68% to 5,011
- S&P 500 up 0.51% to 2,106
- London (FTSE 100) up 0.3% to 7,096
- Frankfurt (DAX) flatish at 12,231
- Paris (CAC) up 0.7% to 5,254
- Tokyo (Nikkei) down at 19,869
- Shanghai (composite) down 1.26% to 4,083
- Hong Kong (Hang Seng) up 0.21% to to 27,618
- ASX Futures (SPI June) +38 to 5935
- AUDUSD: 0.7676
- EURUSD: 1.0675
- USDJPY: 119.15
- GBPUSD: 1.4824
- USDCAD: 1.2303
- Crude: $56.03
- Gold: $1,202
-The ASX was under pressure yesterday and bounced perfectly off trendline support in trade during the day. This naturally biases the ASX200 higher which is what we saw in overnight trade and are likely to see again today.
– In Asia yesterday it was a wild ride for traders in Shanghai after the weaker than expected GDP and associated data. The print of 7% year on year, while right on expectations, was a seven year low. The quaterly rate of growth — just 1.3% — suggests China is going to struggle over the next three quarters to hit the official target of “around” 7%. The growth disquiet wasn’t lost on traders with the Shanghai composite down 1.1% before the luncheon interval after which it rallied back into the green before closing weaker, down 1.26%. That’s a big round trip and the fact that Hong Kong stocks were higher at the close suggests the move higher in H shares is set to continue.
– On forex markets the US dollar lost a lot of strength in the last couple of hours of US trade. The Aussie has recovered well off the China lows yesterday and is at 0.7677 this morning. The Euro traded back up toward 1.07 and USDJPY is in the low 119’s, just above support.
– On commodity markets gold is up at $1,202, crude is at 55.96% for April delivery and Dalian September iron ore is at 395 after overnight futures trade. Newcastle coal for September rose another 25 cents to $54.00.
– On the data front, Australia’s employment report is out today. The market is expecting a rise of 15,000 and an unemployment rate of 6.3%. NAB’s chief markets economist Ivan Colhoun says we should be focused on the record levels of employment not the unemployment rate. In the US tonight, housing starts, building permits and the Philly Fed are the highlights.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day:
I featured Santos as a stock to watch a few weeks ago. At the time it was looking like bouncing off the support of a large rectangle formation for the third time.
As things turned out, the stock had 2 bites at the cherry, coming back to test and reject this support for a fourth time. In doing so it formed a double bottom pattern. This was completed yesterday when Santos snuck above resistance between the double bottoms. Stock traders correctly anticipated that the oil market was getting close to some good news in the shape of falling US production.
US oil production fell a marginal 20,000 barrels last week to 9.38m. However, this triggered a 5% jump in the oil price. This type of price action looks like short covering now that oil has broken above resistance and traders sense an improving supply balance in coming months.
A short covering spike and the mere fact that oil might looks a lot less likely could easily see an ongoing relief rally in the highly leveraged Santos, bringing resistance on the upper side of this rectangle pattern at $8.60 back into play.
Ric Spooner, chief market analyst, CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC