S&P at new closing high, Nikkei about to break out and Aussie top in.

April 3, 2014

You just can’t kill this US stock market rally with a stick. No matter who worries about it and what the long term macro strategists and hedge fund managers say it just keeps going which is helping the local market continue to push higher and the SPI 200 futures rallied again overnight gaining 18 points on the June contract.

So it is likely to be another positive start to the day for Australian stocks but the Aussie Dollar is more range bound and quiet even though though the ANZ suggests that it’s time for a pullback.

One of the reasons stocks closed higher was the solid rise in ADP employment which ever so slightly undershoot expectations of a rise of 195,000 printing 191,000. But that is still a solid lead in the run up to Friday nights non-farm payrolls. Equally the big jump in US factory orders of 1.6% in February against expectations of a rise of 1.2% and from -1% last – so a very solid result.

So at the close of play US stocks recovered from a mid day swoon with the Dow up 0.24% to 16,573, the Nasdaq rose 0.19% to 4,276 while the S&P 500 was 5 points higher for a gain of 0.29% to 1,891 for a new closing high again.

In Europe trade was volatile with EU GDP printing 0.5% in Q4 2013 from -0.3% but worth noting given the ECB meeting tonight is that EU producer prices fell 0.2% in February with a lsight acceleration in the rate of deflation in producer prices to -1.7%. At the close the FTSE rose 0.10% to 6,659, the DAX was 0.20% higher to 9,623 while the CAC rose 0.10% to 4,431. In Milan and Madrid stocks fell 1.02% and 0.26% respectively.

Turning to Asia and after a solid day yesterday Asian stock markets are likely to continue their positive mood again today after overnight gains in Europe and the United States. The Nikkei hit a 3 week high on the back of the Yen’s weakness while stocks in Shanghai were more positive but still range bound. Data to watch today are the Services PMI’s in Japan and China which will be important drivers of sentiment.

As you can see in the chart below the Nikkei is on the cusp of a solid break out if it can get up and through yesterday’s highs.

respect the line until it breaks as always but if it trades above 15,070 I’d be happy to call it a break.

On currency markets the day on day change is not too great but that belies US dollar weakness against the Euro which at one stage drove the EUR to 1.3819 before pulling back to sit at 1.3763 this morning. Sterling likewise is roughly unchanged at 1.6623 but well off its highs while USDJPY is still pushing up and sits at 103.81 this morning. The Aussie has recovered off its lows of 0.9220 to sit at 0.9244 this morning.

As I noted above the ANZ has identified the fact that the Aussie has stopped rallying as a reason that it might fall – it’s classic sentiment trading and we have already highlighted here earlier this week that we think the top just might be in.

Any stop on a short would  obviously depend on position size and risk tolerance but selling small with a 100 point stop seems like it might be a long term good trade which I have instituted.

On commodity markets gold has recovered $10 to $1,289 oz, Nymex crude is largely unchanged at $99.42 Bbl. It is remarkable that Nymex stayed under $100 given the big draw in stocks last week against an expected build. Copper is up 1 cents to $3.06 lb while on the Ags there were once again some huge moves with corn down 2.27%, wheat off 2.33% and soybeans were down 1.62%.

On the data front retail sales in Australia will be important both for stocks and the Aussie dollar and then off course the Services PMI’s around the region and then in Europe and the US tonight. Trade data locally will also be interesting as will the Challenger jobs data in the US along with trade, ISM non-manufacturing.

Have a great day and good hunting

Greg

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