A quick recap:
Not the most exciting of nights last night with US markets open but the rest of the nation having the day off, along with the Japanese, Canadians and Spanish. Sure, stocks managed to end in the black but oil, having rejected important technical support Friday, was hammered more than 4% lower while stocks in Europe exercised their disappointment at the US moves Friday and Monday by closing lower.
Wells Fargo Capital Management’s chief investment officer Jim Paulsen told Reuters that “traders are taking profits on some very nice moves, particularly on the oil patch”.
The big fall in crude was predictable (see “in other news” below) so the main news overnight is the comments from Fed speakers.
After Fed vice chair Stan Fischer said Sunday that the hike was still on track for 2015, Atlanta Fed president Dennis Lockhart suggested December is live as well. Indeed, the NAB’s co-head of global currency strategy Ray Attrill wrote this morning that Lockhart “downplayed the impact of China’s slowdown on the US…(and) re-iterates that the October (29th) meeting is ‘live’ and says markets appear to be misaligned with the Fed over ‘lift-off’” But he stressed that rates won’t go too high too fast. Chicago Fed president Charles Evans was more dovish, noting he would prefer mid-2016 as a lift-off date.
It all added up to a little more pressure on the ASX with the December SPI 200 futures falling 13 points overnight to 5,211 indicating a mildly negative day of trade today after yesterday’s across the board loss of 0.9%. The oil price fall won’t go well in the energy sector and iron ore reversed some of its recent gains on the Dalian exchange as well. But copper held firm. The balance of probabilities, based on the technical outlook traders will be looking at, is for a retest lower in the next couple of days.
On currency markets, the Aussie dollar’s remarkable 9-day stretch continued but it has backed off its 0.7382 high a little this morning. The Kiwi had another good day but the Canadian dollar lost a bit of ground after oil’s little mini-crash. The euro and yen are largely unchanged but the pound is a tiny bit firmer. Also gold is grinding higher…keep an eye on that.
On the data front today we get the single best economic indicator for Australia each month with the release of the NAB Business Survey at 11.30am ADST. David Scutt has a great preview in the run up to the release. After that, at 1pm, China will release the September trade data which is going to be a huge event for markets. Last month’s weak data was a catalyst for weakness across the globe and traders will be watching closely.
Tonight we get German CPI and PPI (WPI) while in the UK we also get a raft of inflation data which will be important in informing traders, forex ones in particular, about the likelihood of a BoE rate hike. The ZEW economic survey is also out for Germany and the EU as a whole. In the US, the focus will be on the NFIB business optimism survey.
The overnight scoreboard (7.42am ADST):
- Dow Jones Industrials +0.28% to 17,131
- Nasdaq Composite +0.17% to 4,838
- S&P 500 +0.13% to 2,017
- London (FTSE 100) -0.7% to 6,371
- Frankfurt (DAX) +0.23% to 10,119
- Tokyo (Nikkei) closed last at 18,438
- Shanghai (composite) +3.29% to 3,287
- Hong Kong (Hang Seng)+1.21% to 22,730
- ASX Futures overnight (SPI December) -13 to 5,211
- AUDUSD: 0.7362
- EURUSD: 1.1364
- USDJPY: 120.00
- GBPUSD: 1.5345
- USDCAD: 1.2993
- Nymex Crude (front contract): $47.39
- Copper (US front contract): $2.4140
- Gold: $1,163
- Dalian Iron Ore (January): 376 (denominated in CNY)
- US 10 year bond rate: 2.09%
- Australian 10 year bond rate: 2.69%
– There are so many good stories on markets and why this rally might be stalling unless or until we can get an upside surprise from earnings this morning. One of my favourites is Sam Ro’s piece on high yield credit and what the heck is gooing on in the junkyard.
It looks like money is drying up for some of these high yield issuers and that’s a red flag to UBS’s Steven Caprio. Sam says Caprio “thinks the US economy is heading for a period of tighter, more expensive money. He observed that what happens in nonbank lending markets like the bond markets lead what happens in bank lending.
“This is not just an energy story, but a broader conversation about the credit cycle and our place in it,” Caprio said.
In my experience, most market funks start somewhere in bond and interest rate markets so we’re all keeping an eye on this.
– I also thought the appalling analogy that Dennis Lockhart, president of the Atlanta Federal Reserve, used in likening the current debate about whether the Fed should raise rates to the O.J. Simpson trial shows just how much pressure the Fed is under at the moment. Myles Udland said that “as for what Lockhart means by the O.J. comparison, we’re not entirely sure.” But, such an analogy from a behavioural perspective tells us much about the difficulty in communicating the message the Fed wants to get out there has become.
– Turning now to oil and the predictability of the move lower last night I noted above. Yesterday in my chart of the day at my trading site I wrote:
We have now found significant resistance at the 200 day moving average.
That’s because the price of Crude, in MT4 terms, has not been above this moving average for well over 1 year. many traders see the 200 ma as the indicator of bull/bear demarcation.
My expectation now is for a move back toward $47 a Bbl.
So when the news hit in OPEC’s latest report released last night showed the cartel pumping an extra 110,000 barrels per day, traders were already nervous.
Here’s the latest chart:
– And finally from me. The Nobel Prize for Economics has been given to Princeton Professor Angus Deaton for his analysis of consumption, poverty, and welfare. You read why he got the gong here.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Regulatory risk is a major issue for Cabcharge. Facing disruptive risk from Uber and others, how governments ultimately respond and change taxi industry regulation looms as a key determinant of this company’s future revenue streams.
News that the ACCC has knocked back an application for CAB and other operators to launch their proposed ihail app is a case in point. Cabcharge proposed a service where this booking app would call a taxi from any one of a number of the major taxi networks planning to participate. Payments would have to be made via the app and so be processed by Cabcharge. The ACCC ruled that although this might be a convenient service for customers, it would potentially do too much damage to competition by pooling taxi networks and precluding other payment services.
The Cabcharge chart has been showing signs of forming a basing pattern in the form of a head and shoulder pattern. Yesterday’s news saw it back away from a bullish break through the neck line resistance. That may still happen, producing a larger corrective rally – potentially back to $3.20-$3.30. Failure at this resistance will herald more nervous drift.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC