Quick Recap: Traders in the US came back from the Labor Day holiday in a much better mood and hit the buy button from the moment the trade started. That left the big three indices up 2.4% or better. Of course that followed from a strong European lead, where stocks rose more than 1%, and the big afternoon rally in Chinese stocks on hopes of more economic stimulus, even though yesterday’s trade data was again weak.
But, in the perverse world of markets, sometimes bad news is good news. So, it seems after the Chinese finance minister doubled down telling the G20 over the weekend that China WILL hit its 7% growth target this year, that the weak Chinese data suggest more economic stimulus is a must.
Either way, there was a broad-based uplift in market sentiment last night which not only saw stocks rally but drove some very big moves in commodities and forex rates. Copper rallied to its highest level in a month with a 5% lift after the Chinese trade data showed still healthy imports of the metal. Brent crude was up but Nymex fell a little. Gold remains becalmed.
The improved sentiment and the rally in Brent and copper helped the commodity block, with the CAD and NOK both rallying while the Kiwi and Aussie dollars went along for the ride. That’s seen the Aussie dollar back above 70 cents this morning – a solid result given the Chinese trade data and suggesting the market was a little skewed short term. The euro is a little stronger after solid German trade data and a revision to EU growth from 0.2% to 0.4%. The yen a little weaker while the pound leapt again.
All of this positivity should help the ASX have another good day today after yesterday’s solid 1.7% rise. Overnight, both the September and December SPI 200 futures were up around 0.8%.
The overnight scoreboard (6.52am AEST):
- Dow Jones +2.43% to 16,493
- Nasdaq +2.73% to 4,812
- S&P 500 +2.49% to 1,969
- London (FTSE 100) +1.18% to 6,146
- Frankfurt (DAX)+1.61% to 10,271
- Tokyo (Ni even thoukkei) -2.43% to 17,427
- Shanghai (composite) -2.55% to 3,079
- Hong Kong (Hang Seng) -1.23% to 20,853
- ASX Futures overnight (SPI September) +41 to 5,140
- AUDUSD: 0.7015
- EURUSD: 1.1202
- USDJPY: 119.81
- GBPUSD: 1.5398
- USDCAD: 1.3201
- Nymex Crude (front contract): $45.79
- Copper (US front contract): $2.4345
- Gold: $1,122
- Dalian Iron Ore (September): 467(denominated in CNY)
- US 10 year bond rate: 2.19%
- Australian 10 year bond rate: 2.659%
– Now the news. Markets in a better mood last night is a good thing and there is no need to be incessantly bearish for the sake of it. Traders seem to have taken a Fed hike off the table next week. Nobel Laureate Joe Stiglitz wrote overnight that leaving rates on hold is a “no-brainer”, and it seems that interest rate traders in the US agree with him. Westpac’s Wellington-based strategist Imre Speizer wrote this morning that “Fed fund rate futures continued to price around a 30% chance of a rate hike in September, October remaining a 50% chance, with the first hike not fully priced until February 2016.” Interestingly, Speizer also highlights that “WSJ Fedwatcher Hilsenrath wrote the lack of a Fed signal to date may indicate an on hold decision next week.” The alternative is that the FOMC, acting like any good board, might actually make the decision after the consultations inherent in the 2-day board meeting. Either way, the lack of expectation for the move is a risk for markets if they surprise. But that’s for another day.
– In the meantime, markets are mapping out a classic “earthquake aftershock” pattern. We’ve had the the acute weakness, snapback rally, retest of lows and now, having apparently found some solid ground on which to base, traders are comfortable to hit the buy button in stocks, copper, the Aussie dollar and so on and sell some bonds. Here’s the chart of the ASX200 which highlights the big fall, rally, fall, bounce pattern we have seen here at home and across the globe.
Technically 5,150 is key but it could rally another 100/110 points.
– I don’t often cover the previous day’s Australian data in this note. But it is worth highlighting the unexpectedly strong business conditions that the NAB’s monthly survey showed yesterday. I say unexpected because after the weak GDP data and disappointing retail sales last week, heads were down, mine included, when it came to the economy. But what the NAB data shows is that the non-mining economy is picking up speed. Sure there is a still a big hole to fill from the end of the mining boom, and the fall in confidence is unlikely to encourage Australian businesses to invest in a hurry. But if there was only one economic release I could look at each month for a read on the Asutralian economy, it would be this one. So I am encouraged.
– That strength may have helped the Aussie dollar resist the weak Chinese trade data but Emma Lawson, the NAB’s Sydney-based currency strategist, said the market might have given the Aussie a free pass on that weak data because “that was due to a sharp slump in imports, rather than a pick-up in exports. One explanation could be the decline was due to the port explosion and fire closing the world’s 4th largest port and preventing imports from entering China. This may be the reason behind AUD’s lack of response. Or it may be a sign of just how short the market is already.” I’ll take the “market is short” explanation, along with the technical outlook I highlighted yesterday.
– On the data front today, we see the release of Westpac’s consumer confidence data. In his preview to the data last Friday, Westpac chief economist Bill Evans implied the survey could be weak given when the questions were being asked last week was impacted by data and markets. But we’ll know at 10.30am AEST. Home loans are out at 11.30am and Phil Lowe has a speech at 12pm. In Japan, confidence and machine orders are out while in the UK we see the release of trade and production data. In the US, it’s the JOLTS jobs survey, the Redbook index and in Canada we get the results of the BoC’s latest monetary policy decision.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
I wrote about the Commonwealth Bank and the Bollinger Band charting tool last week. That day CBA was looking like developing a bullish set up; completing a trend low above the lower band after one well below the band. In the event this didn’t happen. After a strong start that morning, CBA was smashed later in the day. It ended up under the previous day’s low. This meant there was no trend low and no setup.
As it turns out we got the setup yesterday. ANZ is also a good example of it. The two recent trend lows are at about the same price but the second one is well above the lower Bollinger Band. This indicates the kind of declining downward momentum that often precedes a major rally.
The recent lows in ANZ could now go on to complete a double bottom pattern. It’s encouraging that this has happened while the chart is oversold (see stochastic oscillator in the box below the chart).
From here the next tests for ANZ will be a break through the 20 day moving average (purple line) and the double top resistance. A clear break through that resistance could see a corrective rally back towards $31-$32.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
Business Insider Emails & Alerts
Site highlights each day to your inbox.