Stocks in the US are rallying on their own – what gives?

October 27, 2014

It is a weird market at the moment with stocks in the US ripping higher last week.

But old style traders might be wondering where the confirmation of this rally is in other markets.

Indeed while US stocks had their best week for the year with Dow, S&P and Nasdaq up 2.59%, 4.15% and 5.3% respectively  a question for traders though is, “How is it stocks rocketed but major 10-year bond rates didn’t budge over the week?”

That is the big question for me – it doesn’t mean that bond HAVE to sell off if stocks are getting goosed higher but the risk must be evaluated if stocks are moving on thier own. Indeed US stocks – and their antipodean counterparts in Australia – are alsmot exclusively back in the limelight.

It hasn’t stopped the bulls re-emerging and my colleague Myles Udland of BI US reports that Goldman Sachs has doubled down on its recent call that stocks would pick up after earnings season by saying that we’ll see new highs this year on the S&P by Christmas and then stocks will rally 10% to 2,150 in 2015.

That is a bullish scenario by any estimation and one we wouldn’t rule out even though it is counter to my own view. Goldies were almost a lone voice of bullishness a week or so ago.

Anyway at the close Friday, the Dow was up 0.76% on its high for the day and the week, closing at 16,805. The Nasdaq rose 0.7% to 4,484 and the S&P 500 rose 14 points or 0.73% to 1,965.

It is a very specific US-based rally though, with Europe’s bourses except the periphery of Italy and Spain nowhere near as hot last week. On Friday, the FTSE 100 fell 0.47% to 6,389, the DAX is 0.66% lower at 8,988 while the CAC dipped 0.69% to 4,129. Milan and Madrid rose 0.31% and 0.05% respectively.

Locally , the rally on the ASX continues with Futures suggesting another positive open this morning. On Friday night, December SPI futures rose 18 points to 5,419. Iron ore was higher Friday, as was Newcastle coal, which may help stocks today.

5443 looms large on a technical basis for SPI traders as the 61.8% retracement of the big fall.

In Asia, the Nikkei caught the US updraft and was up 5.23% last week. But the Hang Seng lagged with a more European performance and the Shanghai exchange fell 1.67% last week with relentless selling from the high of the week on Tuesday. The data didn’t seem that bad out of China but perhaps traders disagree. On Friday, the Nikkei was 1% higher at 15,292 while the Hang Seng and Shanghai exchanges were down 0.13% and 0.02%. All other things equal, Asia, with no major local data of note, should do better in trade today.

On Currency markets, Forex traders decided that they were tired of trying to thump the Aussie dollar lower and it is at 0.8804 this morning after trading below 0.8730 on Friday. The yen is weaker though at 108.30 while the euro and GBP are at 1.2678 and 1.6080 respectively.

The Aussie remains in a wedge – it traded the bottom side and might test the topside in the next day or so before the FOMC this week.

On Commodities, December iron ore rose 69 cents to $79.73 while Newcastle coal was up 10 cents to $65.80 a tonne. Crude was down however, with a fall of 0.96% to $81.30, while copper was becalmed at $3.04 a pound. Gold closed at $1,231 while the Ags saw corn fall 184%, wheat lose 1.71% and soybeans dip 0.62%.

On the data front today, German IFO is the highlight of the calender tonight but the RBA’s head of financial stability Luci Ellis will be talking at an AHURI conference this morning. Pending home sales and Dallas Fed manufacturing are out in the US tonight.

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