Stock recovery lost on FX markets, Aussie at risk into Easter.

April 17, 2014

There is no point arguing with the market because the market is the market and prices go where prices go but if you needed to know the strength and depth of the relationship between free money and stocks all you had to do was observe the markets reaction to the comments from Fed Chair Yellen that implied that rates will not rise until 2016. You can read the speech and you can see a great chart on Google which shows just how weak the earnings cycle is.

What that means is that at some point reality might win out on stocks and with that risk assets like the Aussie dollar will be at risk.

But in many respects and from a trading sense that is for the memory bank and another day because overnight US stocks stretched their recovery to three days of rallies with strong gains in Europe and the US building on the Nikkei’s incredible 3% jump yesterday.

This has left the June SPI 200 contract up 16 points in overnight trade to 5422 bid.

Besides Yellen’s comments the mildly more positive Beige Book’s read on the state of the Economy helped stocks but with Google tumbling after hours the tone might not be as ebullient in Asian trade today as might otherwise be the case.

Anyway at the end of the days trade the Dow is up 162 points or 1% to 16,425, the Nasdaq rose 1.29% to 4,086 and the S&P 500 rose 19 points or 1.03% to 1,862. It’s a solid result after the mixed data which showed weaker than expected building permits and housing starts but stronger industrial production.

In Europe it was a universally positive day no doubt aided not only by the Nikkei’s lead and US strength but also the still low inflation outcomes for March and the year to March of of just 0.5% suggests that the ECB will soon be embarking on its own QE. At the Close the FTSE was 0.65% higher at 6,584, the DAX rose 1.57% to 9,318 and the CAC rose 1.4% to 4,406. In Milan stocks roared higher up 3.45% while in Madrid stocks rose 1.63%.

Turning to Asia the Chinese data yesterday beat expectations slightly which is what the market focused on but Westpac’s Phat Dragon reckons this masked the real underlying growth data which is looking weaker. In the end the Shanghai exchange was up just 0.16% while the Hang Seng in rose just 0.11%. All the action was concentrated in the Nikkei which reacted favourably to the Yen weakness and BoJ governor Kuroda’s soothing words posting a rise of 3% and looking strong as long as USDJPY remains bid.

Speaking of currencies yesterday the Aussie was under pressure before the Chinese data but it couldn’t rally materially finding sellers below 94 cents and it sits this morning at 0.9368.

It’s not exactly a bad outlook for the Aussie but it certainly looks like the momentum has waned and 94 cents now looks like semi-solid resistance with a move down to the 93 cent region on the cards to gauge support.

0.9285 is the key weekly level.

Euro sits at 1.3814 while the Poind is up a little at 1.6793. USDJPY has hit a convergence of resistance around 102.20/40 and sits at 102.23 this morning.

On commodity markets Copper was the mover of the big three we watch rising 4 cents to $3.05 lb while gold sits at $1,302 oz and oil has risen a little to 103.81 but well of the high of $104.90 overnight. On the Ags we saw continued volatility with corn down 1.19%, wheat off 1.96% but soybeans managed to rally 1.12%.

On the data front just before the Easter break there is a bit of data out in Australia with the NAB’s quarterly business survey out along with vehicles sales. China is releasing foreign direct investment data and Japan has consumer confidence before PPI in Germany tonight. In the US jobless claims are out along with the Philly Fed manufacturing data.

Most Western markets will be closed on Friday and Monday although Japan is open.

Be careful of Easter position squaring in the next 2o odd hours.

All the best and enjoy the holiday

Greg

 

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