Stocks were driven higher by the much better than expected ZEW sentiment survey in Germany and the continuation of M&A activity in the US which is providing that little bit of oomph the market needs up here near all time highs. Elsewhere gold was a little lower and the Yen strengthened after the Finance Minister Aso seemed to contradict the Prime Minister about the prospect of the Bank of Japan buying the bonds of other nations. Sterling was weaker against the US dollar and Gilts are rising suggesting that the market is of the firm view that new BoE governor Carney is going to let inflation run and loosen monetary policy further.
Looking specifically at events the big surprise was the bounce in the ZEW survey in Germany which surged from 31.5 to 48.2 this month for a much better result than the 35 the punditry were expecting. The Eurowide ZEW survey was equally amazing coming in at 42.4 from 31.2 last. How business sentiment has turned around so aggressively after such a poor Q4 2012 in terms of GDP growth is hard to fathom. Indeed the result is hard to reconcile with the current situation that was evident in the german survey which actually FELL from 7.1 to 5.2 for a print much lower than the 9.0 expected.
Stocks in Europe rose sharply and hard. The FTSE was 0.96% higher, the DAX rose 1.62%, the CAC pushed up 1.88%, Milanese stocks rose 1.57% and Madrid rose 1.43%. So it was a great night if you were long but the dichotomy between the current situation and sentiment shows how much of this rally is related to a lifting of the fog of last year’s fear and uncertainty together with the global free money central banking culture.
As Michael Mackenzie wrote in The Short View in the FT overnight this break between reality and expectation poses a risk, not just for European equities but for many markets and recent moves,
This raises the prospect that at some point economic performance may disappoint. Before that occurs, faith in easy money can keep on pumping up asset values and further tilt markets into speculative bubble territory.
As McKenzie also says the trend is your friend – so we aren’t getting bearish or turning all chicken little but as a maturing trend at some point growth needs to come in behind the expectation otherwise once the Fed starts to wind back on its aggressive purchases, which could be as soon as June according to Joe La Vorgna of Deutsche Bank, the market is at a big risk.
Turning to the US the rumour of more M&A in the office supplies sector with Office Depot apparently in talks to acquire Office Max. Staples shares also rose. So with 23 minutes to go before the close the Dow is up 42 points or 0.30% to 14,024. The S&P is up 8 points to 1,528 for a rise of 0.54% and the Nasdaq is up 0.50% to 3,208. As you can see in the Monthly S&P chart below it is nearing the top of uptrend channel that the S&P has been in since the start of this recovery in March 2009 and less than 50 points below the all time high from 2007.
Turning to Global FX markets the Pound was under pressure once again and while it is only down 0.27% to 1.5423 the pressure for lower prices remains as we noted ysterday. It is still 2+ big figures from the super important support but the recent long term uptrend has broken in the past week.
USDJPY was also a bit interesting overnight with comments from Finance Minister Aso that he was not considering buying foreign bonds in his loose monetary efforts seeing the USDJPY pullback 0.55% to 93.43.
Our view remains unchanged from what we said yesterday when we said,
We find it hard to get too excited given all our usual indicators which are flashing warning signs but unless USDJPY falls down into and through the 91.90/92.30 region the rally is intact.
The Aussie benefitted from the more ebullient tone and the weaker US dollar, which lost ground against the Euro and Yen, rising 0.55% from a low of 1.0298 to a high of 1.0367 sitting just below it at 1.0361 this morning. It is an ugly and confused chart as you can see below on the dailies but if the Aussie can get through 1.0375 then a further push higher is on the cards. The chances are high.
Euro of course rallied with the stock markets and the better ZEW sentiment surveys and has bounced of trendline support over the past 3 sessions. Only a break of 1.3300 would now force Euro lower in the short term.
Turning to commodites Gold looked weaker again overnight with a little rally fading and gold sits at $1602.80 oz for its weakest close since last August. Silver fell 1.43% to $30.00 oz with a low just above the bottom of the wedge it has been in for a while now. Nymex crude was up 0.72% to $96.55 Bbl as it dances in the range and the Ags were mixed with Corn down 0.50%, Wheat fell 1.38% but Soybeans surged 3.21%.
In Australia we have Wage price index and then RBNZ Governor Wheeler speaks before a raft of European inflation data and critically for Sterling the BoE minutes from the recent meeting as well as UK unemployment data. In the US there is a raft of housing related data, PPI and then the FOMC minutes.