– Stock markets ended the week under pressure as concerns over Greece and China combined to sap energy from the recent bull run in every major market – except China of course. At the close the Dow was down 279 points, the S&P 500 lost 24 while in Europe the DAX lost 310 points for a huge 2.58% drop.
– Clearly the fractious relationship between Greece and its EU paymasters has not been healed over the period between January’s ructions and now. Indeed, the belligerence of German Finance Minister Wolfgang Schaeuble seems to have hardened and increasingly, it looks like traders are fearful of what looks like it might be a messy endgame. How it plays out in the weeks ahead is uncertain enough for European traders to start to worry. Over the weekend IMF boss Christine Lagarde once again reiterated what appears to be the sticking point – Greece needs to generate the reforms of its economy that satisfy lenders. The problem of course is that such reforms may not satisfy the Greek population. We await April 24.
– In the US, and by extension the ASX, after last week’s poor close traders will be looking closely at the raft of earnings results for S&P 500 companies. So far, the earnings season has kept the market fairly steady. Rick Meckler, president of LibertyView Capital Management in New Jersey summed things up for US stocks nicely when he told Reuters that “Most companies have been able to beat on the bottom line and miss on the top line, and that has been the story now for quite a while, Their ability to make numbers keeps their stocks from really selling off, but their inability to show top line growth keeps their stocks from really taking off.”
– Nothing seems capable of derailing the surge in Shanghai stocks. Even comments from Xiao Gang, chairman of the China Securities Regulatory Commission (CSRC) who warned new traders to be “calm and rational” fell on deaf ears. The South China Morning Post on Friday reported that Xiao said:
I have to remind those new investors who have just opened securities account last year amid the stock market rally. These new investors do not have the experience nor sufficient risk management concept. These investors need to be rational and calm. They should not think they may miss the boat if they do not invest. They have to access how much risks they can afford and not to blindly follow the crowd to invest.
That didn’t stop the Shanghai composite rallying another 2.23% on Friday however because traders believe that the weak economy needs, and will receive, more stimulus.
– That’s exactly what happened over the weekend with the PBOC announcing a huge 1% cut to the banks reserve ratio requirement, which is expected to release around 1 trillion Yuan into the economy. It’s going to be hard for Shanghai traders to restrain themselves with that much cash entering the system even though authorities on Friday also tightened up margin restirictions and allowed Funds to provide stocks for short selling.
Here’s the overnight scoreboard (7.00 am AEST):
- Dow Jones down 1.54% to 17,826
- Nasdaq down 1.52% to 4,931
- S&P 500 down 1.13% to 2,081
- London (FTSE 100) down 0.93% to 6,994
- Frankfurt (DAX) down 2.58% to 11,668
- Paris (CAC) down down 1.55% to 5,143
- Tokyo (Nikkei) down 1.17% to 19,652
- Shanghai (composite) up 2.23% to 4,288
- Hong Kong (Hang Seng) down 0.31% to 27,653
- ASX Futures (SPI June) -47 to 5,815
- AUDUSD: 0.7814
- EURUSD: 1.0818
- USDJPY: 118.93
- GBPUSD: 1.49355
- USDCAD: 1.2214
- Crude: $56.14
- Gold: $1,204
– The local market looks set to open lower if the futures move on Friday night and Saturday morning is any lead. Offshore moves will be vitally important but the technical structure of the market has deteriorated with the rejection of the 6,000 level on the ASX 200 last Monday and then the break lower late in the week. This is likely to keep the bulls a little wary for the moment.
– On interest rate markets the rally continues with German 10s making a fresh all-time low of 0.05%. Imre Speizer, Westpac’s New Zealand strategist, said this morning that “shorter maturities fell deeper into negative territory (eg. 7yr fell to -0.12%)”. That helps explain why the Aussie dollar isn’t crashing because he also said that on Friday night “Australian 3-year government bond futures ranged sideways between 1.72% and 1.79%, while 10-year yield ranged between 2.33% and 2.39%.” That’s still a huge pick-up in favour of the Aussie dollar. In the US rates rallied to 1.84% before the small beat by US CPI which saw them back at 1.91% at the close.
– On forex markets, Aussie dollar traders have popped the battler up and through 78 cents in early Asian trade this morning. No doubt this is a result of the Chinese RRR cut over the weekend. It does look biased higher for the moment though even though you can hardly ever trust early Monday price moves in Asia. The Euro is at an interesting juncture testing the downtrend line that stretches back to the start of the fall in December last year at 1.2550. USDJPY is becalmed, the Canadian dollar has run out of steam and the Kiwi is up a little in sympathy with the Aussie dollar this morning.
– Commodity markets saw June iron ore rally hard on Nymec up $1.67 to $50.88 a tonne. That’s a strong move even though longer maturities failed to participate in the rally. Newcastle coal dipped 30 cents to $56.85 for June delivery. Gold is still trading the $20-30 range and sits at $1,204 this morning. Copper closed Friday at $2.80 a pound.
On the data front it is a quiet week really with nothing out in Australia today. In New Zealand CPI is out this morning, while tonight we get German PPI.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day:
Today’s task for market followers will be to decide if this is just another downdraft in the broad sideways movement we’ve seen since the ASX 200 first peaked at 6000.
Alternatively is the market getting fatigued and heading for a more significant pull back.
ANZ’s chart might be useful for this purpose. The stock recently completed a double top and by Friday, had hit the top end of a support zone. This consists of a trend line and the 55 day moving average. Just below that at around $35.40 is the double top measuring target. This projects the height of the double top pattern from the point where price broke below it.
ANZ is hitting this first support zone with a fair bit of downward momentum so I won’t be assuming it will hold. I’d want to see it show signs of forming a trend low and bouncing out of this support over coming days.
If price just keeps falling from here and takes the first support out, the next level I will have on my watch list is the 38.2% Fibonacci retracement around $34.70. Given that limited downward corrections in bank stocks have been one of the enduring stock market themes of recent times, this is as far as I’m looking at this stage.
Ric Spooner, chief market analyst, CMC Markets.
You can follow Ric on Twitter @ricspooner_CMC