A quick recap:
It was a quieter night in the US, after rallies of between 0.1% and 0.4% across the big three indexes to end a very solid week of gains, with the Dow and S&P both up more than 3%. Europe was a bit more ebullient on Friday with indexes up strongly and the FTSE and DAX ending the 5 trading days up 4.67% and 5.69% respectively.
It’s all part of the continued reversal of the acute bearishness markets experienced in August and September and the unwinding of that sentiment. The best example of that is the continued recovery in emerging market currencies, which were higher again on Friday night.
The NAB’s co-head of global currency strategy Ray Attrill highlighted in a note this morning that:
Currencies were more lively that equities or bonds, with further strong gains for some of the most beaten up Emerging Market currencies of the past few months. The Indonesian rupiah added another 3.37% to be 9% higher on the week, and Malaysia 2.6% to be 6.9% up on the week.
For the Aussie dollar, that liveliness means it’s opening above 73 cents for the first time since mid-August. Craig James, CommSec chief economist, tweeted this morning that this is entirely consistent with the rally in the CRB commodity index, which is up at 2-month highs.
But Bill Evans, Westpac’s chief economist warned the good times won’t last and the Aussie dollar is heading down to 66 cents.
Elsewhere in currency land, the Euro is still up near 1.14, the yen is becalmed and the Kiwi and CAD are doing really well in line with the commodity rally. Sterling has underperformed, however, with a weaker than expected trade performance. Like everyone else neither the BoE or the British economy need a stronger Pound.
The wash up is the local sharemarket is expected to open a little weaker this morning with the SPI 200 December contract down around 18 points on Saturday morning’s close. Of course the context is the very solid 1.3% rally in Australia on Friday, which wasn’t followed up by strong moves on Wall Street. Friday’s rally took the local market to the top of the post-crash trading range since August and looks like it is going to offer some resistance to traders wary of getting ahead of themselves (see chart below).
Comments by Fed vice chair Stanley FIscher at an IMF conference in Peru on Sunday, while somewhat open-ended, still suggest the Fed is on track to hike rates in 2015, saying this is ““an expectation, not a commitment.” But, he did note current headwinds aren’t expected to derail this move higher.
Looking at commodities, oil had a wild ride to finish almost unchanged from where it was trading Friday morning Australian time. It crashed into and found resistance (selling) at the 200-day moving average. Dr Copper’s recovery continues to defy doomsayers and it rallied to $2.41 a pound, while gold lifted to $1,157. Zinc rocketed 10.5%, dragging Glencore shares higher after the company announced it was cutting output heavily.
On the data front today it’s a fairly quiet start to the week. Japan, Spain and Canada have public holidays and the only major events are speeches by The Fed’s Lockhart and Evans while Bank of Canada Governor Stephen Poloz is also speaking on his day off.
For a deeper look at the week ahead you, read AUSTRALIAN DIARY: Everything you need to know about the massive week ahead for markets
The overnight scoreboard (6.53am AEST):
- Dow Jones Industrials +0.2% to 17,084
- Nasdaq Composite +0.41% to 4,830
- S&P 500 +0.07% to 2,014
- London (FTSE 100) +0.65% to 6,416
- Frankfurt (DAX) +1.04% to 10,096
- Tokyo (Nikkei) +1.64% to 18,438
- Shanghai (composite) +1.28% to 3,183
- Hong Kong (Hang Seng)+0.46% to 22,458
- ASX Futures overnight (SPI December) -18 to 5,248
- AUDUSD: 0.7321
- EURUSD: 1.1359
- USDJPY: 120.17
- GBPUSD: 1.5314
- USDCAD: 1.2952
- Nymex Crude (front contract): $49.63
- Copper (US front contract): $2.4170
- Gold: $1,157
- Dalian Iron Ore (January): 381.5(denominated in CNY)
- US 10 year bond rate: 2.09%
- Australian 10 year bond rate: 2.71%
– The Fed is still on track to hike rates according to Fed vice chair Stanley Fischer. Reuters reports that while he did leave the door ajar with his “expectation, not a commitment” comment he added that the track toward higher rates looks set.
Fischer highlighted the recent weakness in US jobs reports and considerable uncertainties in the US economic outlook but added “we do not currently anticipate that the effects of these recent developments on the U.S. economy will prove to be large enough to have a significant effect on the path for policy.”
– Last week the ASX 200 closed at 5,279 up 4.7% on the week. That brings its recovery from the September lows to 7.34% and prices back to the range top. That’s a place where many traders will be getting nervous about pushing too far or hard given it’s another big week for earnings in the US.
But, as I highlighted in my look at the week ahead Brian Belski, BMO Capital markets chief investment strategist, the man who back in late September gave four reasons to be bullish stocks, said in a note Friday that a large number of client conversations are being dominated by negative sentiment about earnings. But Belski says:
We firmly believe near-term earnings growth will wind up being much better than expected when all is said and done. In fact, a more comprehensive look at the earnings picture and trends in corporate guidance and earnings quality likely set the stage for another surprisingly resilient reporting period, in our view.
Here’s the chart of the ASX 200 and the level traders will be watching:
And now to CMC Markets’ Michael McCarthy for today’s Stock of the Day
Macquarie Group – A Story Goes With It
Purely technical traders don’t need anything other than the chart. For this hard core, fundamentals don’t come into the picture, and they may have bought Macquarie on Friday on a triangle break out. However, those traders who like the stars to align may also be examining MQG closely, because a story goes with it.
ANZ sold its leasing and financing business, Esanda, to Macquarie in a deal worth $8.2 billion. Macquarie immediately tapped institutional investors for $4 billion at $80 a share, and will raise further capital from individual investors. This may result in short term pressure on the share price as the new shares are “digested”, but the earnings kicker from the new business could see MQG shares rise over the medium to long term.
And that story fits the triangle break out trade beautifully.
Where a price gaps out of the triangle, many traders will look for a pull back to the break out level to buy. In this case, that’s just above $79 – perhaps at the placement price of $80. The theory is that once the gap is filled, a major up move is in the offing.
I love it when a trade comes together.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC