Risk was back on overnight as stocks, the commodity bloc and rates rose

July 2, 2014

I’m not a big fan of the old “risk on – risk off” meme – it always feels a lazy way to describe markets.

But there is no escaping the moves last night across the full spectrum of markets represent the movement of funds into assets that usually equate with a more risk seeking environment.

It doesn’t look like it was the data which seemed to ignite things. Unless of course it was the not-bad Chinese PMI’s yesterday and a recognition of the change in the deposit to loan (leverage) ratio changes announced in China the day before. More likely though, given that Asia, the US and Europe all erupted out of the blocks, it was asset allocation moves for the new quarter and to be frank “more buyers than sellers” in a quiet market.

So at the close the Dow was 129 points higher for a rise of 0.77% to 16,956. The Nasdaq ripped 1.15% higher to 4,459 and the S&P finished at 1,973 up 13 points or 0.65%

Datawise in the US the Markit manufacturing PMI printed 57.3 versus 57.5 last month. The ISM version was lower than expected at 55.3 against 55.8 expectations. Construction spending also disappointed printing just 0.1% higher against expectations of a rise of 0.5%.

European stocks had a great day as well with the FTSE up 0.88% to 6,803, the DAX heading back toward 10,000 up 0.7% to 9,902 and even the CAC in Paris had a solid rise up 0.86% to 4,461. Stocks in Milan rose 1.32% while those in Madrid were up 0.77%.

The impact of the above has been that the ASX should open higher today after its 0.4% fall in physical trade yesterday. Overnight SPI 200 September futures rose 20 points to 5,359 bid. Iron ore was up but the Australian market is doing its own thing at the moment so nothing is guaranteed.

Surely its time for a catch up though – maybe I’ll buy on the open because this looks like a market that is bouncing of the bottom of its range again.

On bonds US 10′s rose 4 points to 2.57%, a loss of 1.48% on capital, German 10 year Bunds finished at 1.25% while 10 year Gilts rose 4 points for a similar capital loss to Treasuries finishing at 2.71%. Locally there was no change on the 3′s and 10′s in overnight trade.

On currency markets the dollar bloc received a lift and while the Aussie dollar was the stronger of the 3 the CAD and to a lesser extent the Kiwi went along for the ride. The Aussie sits at 0.9492 this morning and I wrote a quick piece at BI which is worth a look. Sterling was also higher sitting at 1.7147 this morning and Mark Carney will be worried about the impact on growth – but at least Sterling’s strength will temper the need for interest rate rises. The Yen lost ground yesterday as stocks rallied – or does the correlation run the other way? Euro is at 1.3678.

On commodity markets iron ore was up $1.33 tonne to $95.00 for September delivery. September Newcastle coal lost 30 cents though to $71.25. Gold is at $1,326 and silver $21.07 while copper finished at $3.19. On the Ags corn fell 0.35%, wheat fell 0.89% and soybeans were flat.

So far Gold’s break is uninspiring how will it end the week?

On the data front Australia will get the trade data for May this morning and then we see EU GDP tonight and then all eyes will turn to Janet Yellen’s speech. ADP employment is also out as is the Challenger job cuts series.

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