So now we know what free money does. It dampens downside volatility and makes the market dangerously skewed toward good news only.
I don’t mean dangerous because I’m endlessly pessimistic or even because I think stocks should plunge and the economy is in dire straits – far from it. I simply believe a market is more stable through time when there is a two way flow of information and price action around that information.
Consider it akin to building a solid foundation for your house or in this case the market.
Yesterday my colleague at Business Insider was down at the Australia Venture capital conference in Melbourne and wrote an article about the end to market “levitation” .
It will happen eventually, when and in what measure though are hard to fathom. I thought we might have seen a meaningful pullback by now but as we discussed earlier this week perhaps its the end of the taper and the start of rates rising which is needed.
Time will tell.
Overnight though the key driver was the on, maybe not on, cease fire between Russia and Ukraine which was proposed by Vladimir Putin. While the Ukrainian President said who would want such a deal the Prime Minister was far less conciliatory.
On currency markets the Ukrainian peace talk and the clear signal from RBA Governor Stevens that he is not going to cut rates anytime soon combined to drive the Aussie dollar higher and it sits at 0.9341 this morning up 70 pips from yesterday’s lows.
The Euro has clearly sold off enough in the lead up to the ECB meeting tonight and it sits at 1.3147 this morning while Sterling couldn’t even take a very solid services PMI outcome and what it means for GDP as a positive and it sits back at 1.6459 this morning. USDJPY is at 104.85.
But in the end it was European stocks exposed to Russia which did best overnight. The DAX was 1.25% higher to 9,626. DAX futures are fighting overhead technical resistance and so far losing but an ECB move and a real cessation in hostilities might be the catalyst it needs.
The DAX is the “little engine that thinks it can”.
Elsewhere on the continent there trade was equally ebullient with the CAC up 1% to 4,422, the FTSE MIB ripped 1.89% higher and the IBEX 35 rose 1.23%. In the UK the FTSE was fairly quiet by comparison up just 0.66% to 6,874.
Datawise in Europe you’d have to think that the universally weaker Markit services PMI’s in Europe put more pressure on the ECB to move tonight but you never know with Europes fractured central bank – we’ll know at 10.15 pm this evening.
In the US the S&P 500 made a new all time high at 2009 but finished at the low of the day of 2001 down 1 point. It looks like the S&P is stalling here for the moment on the dailies.
The Dow was up marginally rising 0.06% to 17,078 while the NASDAQ was dragged lower by the 4% fall in Apple from recent all-time highs. The tech heavy index finished down 0.55% at 4,573.
On the data front the Fed’s Beige Book showed all 12 districts are now growing.
Locally it has left the market off the highs from the past 24 hours but the September SPI 200 futures are unchanged this morning at 5,646. Iron ore tanked again overnight with September futures falling $1.43 a tonne to $85.27.
Asian stocks had a good day yesterday with the Hang Seng playing catch up to the recent moves up 2.3% to 25,318. Shanghais recovery continued apace rising 1.01% to 2,289. The Nikkei was more subdued rising just 0.38% to 15, 728. With USDJPY back below 105 it might be a poorer performance for the Japanese market today.
On commodities as noted above iron ore looks terrible and friendless. September Newcastle cola fell 30 cents a tonne to $67.05 while Nymex crude rose 2.37% to $95.08. Gold is largely unchanged at $1,270 and copper is resting at $3.13 a pound. On the Ags wheat fell 3.35%, corn dropped 3.08% and soybeans fell 0.44%.
On the data front we have a huge day ahead of us. retail sales for July are out in Australia and the market is looking for a 0.4% rise. Trade is also out in Australia.
But it is the monetary policy statements and decisions which are the big releases today with the BoJ, BoE and particularly the ECB which will have traders focused. The ECB is expected to begin QE so whether it does and what it says is likely to move FX, bond and stock markets. It is a huge call for them.
In the US we get non-manufacturing PMI from the ISM and Challenger job cuts as a lead to the non-farms tomorrow.