A quick recap: It continues to be a volatile time for traders across global markets at the moment. Crude oil bounced more than 3%, the euro lost a per cent, the Aussie dollar is back in the low 71 cent region, and stocks in the US recovered from Friday weakness to post reasonably healthy gains in the big three indices.
That rally in the US was despite some big falls in biotech and speciality drug makers after a tweet from presidential nominee Hillary Clinton accused them of price gouging.
Stocks in Europe were higher as well but Volkswagen was hammered after details of a possible $18 billion fine from the EPA in the US “for cheating on emissions tests”.
The impact of all that is ASX December SPI futures are 23 points higher at 5,082. Traders might be a little disappointed by that performance after the physical market lost 104 points yesterday. But sentiment is fragile and the reality is markets are unsure and simply bouncing up and down at the moment.
Part of the reason for the fragility is the many voices with which the Fed is talking. Last night we heard from speakers that a 2015 rate hike is still on the table. While that didn’t hurt stocks, it sent bond rates in the US higher again.
The overnight scoreboard (6.57am AEST):
- Dow Jones Industrials +0.77% to 16,510
- Nasdaq Composite +0.04% to 4,828
- S&P 500 +0.46% to 1,966
- London (FTSE 100) +0.08% to 6,108
- Frankfurt (DAX) +0.33% to 9,948
- Tokyo (Nikkei) CLosed – Last at 18,070
- Shanghai (composite) +1.91% to 3,157
- Hong Kong (Hang Seng) -0.75% to 21,756
- ASX Futures overnight (SPI December) +23 to 5,082
- AUDUSD: 0.7129
- EURUSD: 1.1189
- USDJPY: 120.53
- GBPUSD: 1.5503
- USDCAD: 1.3254
- Nymex Crude (front contract): $44.34
- Copper (US front contract): $2.4020
- Gold: $1,133
- Dalian Iron Ore (January): 390.5 (denominated in CNY)
- US 10 year bond rate: 2.20%
- Australian 10 year bond rate: 2.77%
Now the news. I’ve read a couple of times this morning that investors were tilting toward risky assets again overnight. I guess you could make that argument because stocks, and oil, rose while bonds and gold dropped in price. But risk on, risk off are overused and it seems that the volatility we are seeing, both up and down, is reflective of traders still trying to work out what the heck is going on and what message the Fed is trying to give markets.
After Janet Yellen gave a somewhat dovish press conference last week, investment banks like Goldman Sachs now favour December at the earliest and are leaning toward 2016. But last night Dennis Lockhart, the Atlanta fed president, said a 2015 rate hike is on the table but that he had supported last week’s decision. “The altered risk picture relative to the economic outlook was decisive in my thinking,” he said. He also added: “I thought it prudent to wait to evaluate whether recent developments change the outlook.”
Again a confusing message.
But his colleague and noted hawk, St Louis fed president James Bullard, didn’t equivocate at all. Key to his message was the comment: “Inflation is going to return to target and our policies are a long way out of position compared to where we should be.”
Ahhh, for the time when central bankers dampened volatility.
– In that vein, another ECB member did his best to hammer the euro lower and reinforce that central bankers are playing this zero sum currency war game via monetary policy. The BNZ’s Wellington based strategist Kymberly Martin wrote this morning that “ECB’s Praet admitted he was a ‘little bit worried’ about the recent spike in market volatility. But he reiterated that if the ECB’s objectives were at risk they will do “what is necessary”. That’s code for continued ECB QE until further notice and a weaker euro.
It worked. Euro lost a per cent, the US dollar was stronger and the Aussie was caught in the maelstrom and is back in the low 71 cent region.
Here’s a chart of the euro which suggests it might have another big fall coming:
– Looking at stocks now and they weren’t doing too bad, either in the US or Europe, before the tweet from Clinton overnight. The impact, according to Business Insider US reporter Akin Oyedele, was that “biotechs got smoked”. He said “the iShares Nasdaq Biotechnology Index ETF fell more than 4%. Some of the uglier individual names included Exact Sciences (-7%), Juno Therapeutics (-9%), and Biogen (-6%).”
You can see Mrs Clinton didn’t miss.
– Overnight data in the US was a little weaker than expected and Oyedele reports that “existing home sales unexpectedly fell 4.8% to an annual rate of 5.31 million in August, the National Association of Realtors said. Chief economist Lawrence Yun said tight inventory levels discouraged some buyers. Single-family home sales fell 5.3% to a seasonally adjusted rate of 4.69 million, while condo and co-op sales fell 1.6% to a seasonally adjusted rate of 620,000 units. At $US228,700, the median home price rose year-on-year for a 42nd straight month.”
– Locally today, it’s another quiet day of data with the house price index the only data releases. It’s a bank holiday in Japan and in China we should get the leading economic index. Swiss trade is out tonight while in the US it’s the Redbook and housing price indexes and the Richmond Fed manufacturing index.
And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day
Every investment professional has at least one friend who reckons finance workers don’t have “real” jobs. Because they can’t touch or hold the product, the job can’t be as decent and noble as building, mowing or clipping. Make sure you tell that friend about IPH Ltd.
IPH provides intellectual property services – patents and other design protection, trademarks and associated legal services. Initially listed in November 2014 at $2.10, its share price hit $6.83 yesterday, tripling in less than a year. Superior growth stories are hard to find, and IPH further fuelled this aspect of its corporate profile with the announcement of an acquisition of Pizzey’s, a smaller Brisbane and Canberra based competitor.
The chart suggests the price action is heating up, and becoming less stable. There are two scenarios; the immediately positive and the eventually positive (of course, anything is possible and the share price could also fall). Trading up through yesterday’s all time high at $6.83 could signal further exponential gains straight away. On the other hand, a pull back to “fill the gap” on the daily chart could see a sharp correction towards $5.80 and possibly major support at $5.50. While the path to higher share prices is not clear, it seems likely.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC
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