– US non-farm payrolls were strong (+223,000) but not as strong as forecast, helping US stock markets rally Friday night. Despite the 5.4% unemployment rate being completely incompatible with the FOMC keeping rates at zero the Dow gained more than 1.5% dragging the S&P and Nasdaq higher. The key to the market not bringing “forward Fed tightening expectations”, according to Westpac New Zealand strategist Imre Speizer, was the downward revision to March payrolls which now sits at 85,000. That, along with a small 0.1% rise in hourly earnings growth, “confirms a lot of the Q1 softness was due to one-time negatives, but without wage growth.”
– Across the pond stocks in the UK cheered the return of the Cameron government with the resounding and unexpected win by the Tories putting political uncertainty to one side. The promise of political stability also helped the Pound roar higher on Friday trading up above 1.55 at one point — more than three big figures above the lows prior to the release of exit pools which predicted the government’s victory. Stocks on the continent went along for the ride and all the major markets I watch are up more than 2%.
– In China yesterday the PBOC cut rates again (down 0.25%) in an effort to get the economy moving. This is the third rate cut in three months and it’s clear the economy is slowing and likely to miss the 7% growth target for the year. Over the weekend Chinese CPI undershot expectations, with PPI falling 4.6% year on year and CPI up just 1.5% after a monthly fall of 0.2% during April. Demand is still lacking. As the PBOC said in the release which accompanied the rate cut, “China’s economy is still facing relatively big downward pressure.”
Here’s the overnight scoreboard (7.15am AEST):
- Dow Jones up 1.50% to 18,191
- Nasdaq up up 1.17% to 5,003
- S&P 500 up 1.35% to 2,116
- London (FTSE 100) up 2.32% to 7,046
- Frankfurt (DAX) up 2.65% to 11,709
- Paris (CAC) up 2.48% to 5,090
- Tokyo (Nikkei) 19,379
- Shanghai (composite) up 2.3% late in the day to 4,206
- Hong Kong (Hang Seng) up 1.05% to 27,577
- ASX Futures (SPI June) +43 to 5,645
- AUDUSD: 0.7921
- EURUSD: 1.1201
- USDJPY: 119.76
- GBPUSD: 1.5450
- USDCAD: 1.2086
- Crude: $59.40
- Gold: $1,187
- Dalian Iron Ore (September): 442
– The local stock market should have a better day if the futures moves over the weekend are any guide. It slipped lower on Friday afternoon, completely missing the Chinese rally and better sentiment throughout the region, but with a solid futures trade and Dalian iron ore back up at 442 the miners might also get a lift. Perhaps the PBOC rate cut will help the market at the margin. In a technical sense last week’s low on the 200-day moving average will have emboldened some bulls — at least for a retracement (rally) back toward the break down level of 5,743.
– In Asia Friday the whisper that a PBOC rate cut was coming may have lifted the Shanghai market into the close of trade based on the 5 minute chart shared on Twitter by Business Insider colleague David Scutt over the weekend. The actual cut is likely to drive further gains today but you have to wonder when, or if, traders might notice that there is a breakdown between economic reality and stocks.
– But why should Chinese traders be any different to other traders. As Matt King from Citibank argued “it is expectations of central bank liquidity, not economic or corporate fundamentals, which have become the main driver of everything from €/$ to credit spreads to BTP yields.” I’ve had a look at his suggestion that central bank liquidity injections are having the opposite effect.
– On Forex markets it was a huge day Friday but it all settled down in US trade with Euro and Sterling off their highs. USDJPY remains becalmed and the Aussie got an early lift this morning on the back of the PBOC move but that seems a long bow. The 80/81 cent region is stacking up as the Aussie dollar version of ASX 6,000 at the moment so we’ll see how things go over the next week or so.
– On commodities gold remains steady, crude rallied a little — back above $59 a barrel, copper settled at $2.93 and Dalian iron ore was strong. However, overall most markets are trading inside recent ranges.
– On the data front today we get the NAB monthly business survey for April and German wholesale prices tonight.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
AMP is a stock I have a watching brief on as a possible takeover target. The significant rally in its share price in recent months may make this somewhat less likely at the moment. However, if and when the much awaited weakness in the Aussie Dollar eventually occurs, AMP could easily start looking a lot more attractive to offshore investors keen to get a slice of the “rivers of gold” flowing from Australia’s compulsory superannuation system.
This thinking might explain why AMP has so far held onto the support of the trading range that’s been in place since February, even though the wider market broke decisively below comparable levels this week. Over the medium term, AMP’s revenue is impacted by stock market trends via the valuation impact on its Funds under Management so it’s interesting to see investors holding the line in the face of this week’s sell-off in the major banks and other stocks.
From a chart point of view, AMP looks interesting having bounced neatly off an AB=CD level as outlined below. This sits just below the late March low and just above the 38.2% Fibonacci retracement level at $6.22. Together these form a potential support zone for AMP. If the market shows clear signs of rejecting this support zone in coming days a rally to retest resistance around $6.80 would not be hard to imagine.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC