Stocks bounce but currency and bond markets quiet – what gives?

August 12, 2014

Right so we can all relax – stocks rallied and all is good in the world again.

Woo Hoo, slam dunk – it’s all good.

Not so fast – even though stocks ripped higher in Asia and Europe and the positive feedback loop feed back into a positive mood on Wall Street the lack of follow through on either bonds or currency markets suggests a warning at best that what we’ll see is this up and down tooing and froing market not a renewed push higher.

The volatility at the moment both down and up is as much a warning it seems of growing instability in markets as much as it is that underlying buying continues in stocks.

For today though, the buyers have it.

So at the close the Dow was up 16 points of 0.10% to 16,570, the Nasdaq lead the way though with a gain of 0.69% to 4,401 while the S&P 500 is up 5 to 1,937 for a gain of 0.28%. Here is what my BI US colleagues think are the key US specific points from overnight trade.

In Europe it was champagne and caviar all around as stocks played catch up to the US recovery Friday and then positivity last night. The FTSE was 1% higher to 6,633, the DAX fairly roared up 1,91% and the CAC rose 1.21%. Stocks in Milan were up 1.39% while those in Spain rose “just” 0.88%.

Asian stocks yesterday were on a tear as well with the Nikkei up 2.39% to 15,131 – that’s a huge move for a developed market in one day and even though its an up not down move traders will be a bit leery of that one. Hong Kong traders were positive as well bidding the Hang Seng up 1.29% while in Shangahi stocks rose 1.39%. Asia was positive because the US was strong but equally the Chinese CPI over the weekend at just 2.3% year on year was very benign – which is a good thing for the Chinese economy.

On the ASX yesterday it was a good day with the physical index up 0.4%. Overnight on the futures market the SPI 200 September contract rose 20 points to 5,414.

Not quite strong enough – bias still lower LT[/caption]

On interest rate markets the big story is there is no story. Another warning to ebullient champagne drinking stock traders perhaps? US 10 year rates stayed unchanged at 2.43%, German 10 year Bunds rose a point to 1.06% while Gilts lost 3 pips to 2.49%.

Likewise the world’s biggest macro market – foreign exchange – was very quiet perhaps signalling another warning to stock traders despairing one day and celebrating the next. The US dollar reversed some of Friday’s losses.

The Euro fell around 30 pips from the high to 1.3384 this morning. Sterling is at 1.6785 and USDJPY at 102.18. The Aussie has slipped back a little, only a little though to 0.9260.

It’s unfashionable but the Aussie seems biased lower on the weeklies – big time![/caption]

On commodity markets September iron ore futures fell 25 cents to $94.50 a tonne. Newcastle coal for the same month dipped 10 cents to $71.65.

Nymex crude is up 22 cents a Bbl to $97.87, gold is calm at $1,309 an ounce with silver back over $20 at $20.02 while copper is at 3.19 a pound. On the Ags wheat dipped 0.66% but corn was up 1.31% and soybeans unchanged.

Data wise today we get the latest update of the ANZ-Roy Morgan weekly consumer confidence survey before the NAB Business Survey and house price index. Industrial production in Japan is out and important for Abenomics and then Italian CPI, the ZEW business survey in Germany and the NFIB business index in the US tonight.

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