Spain and earnings ignited a good night for stocks across both Europe and the US.
Spain was the catalyst for the kick off early in the European day with reports that the embattled nation is going to ask for access to an emergency credit line from the ESM. This is a kind of bailout light but the line of credit will come with conditions that may then trigger the ECB to be able to start buying Spanish bonds. It is not a done deal yet as the Wall Street Journal reported:
An unnamed Spanish Finance Ministry official told international press late Monday that Spain was looking for support from its euro-zone partners to push ahead with the bailout request, but that the government was uncertain of unanimous backing over worries that nervous investors could then turn their sights on Italy,
But there was enough in the story, and the fact that the Spanish resistance to seeking help is diminishing to get markets excited. Well at least equity markets, Spanish 10 year bonds hardly moved, down only a point to 5.80%.
That didn’t stop stocks, with Madrid up 3.37%, the FTSE up 1.12%, the DAX up 1.58% and the ever erratic French index the CAC up an outsized 2.36%.
This positive tone continued into North American trade but it was less enthusiastic than Europe. Goldman Sachs beat the Street, just, as its investment banking and trading areas showed a recovery in revenues but Coke could only just match expectations and its share price fell as offshore business in China and Europe was slower. Apple sent out invitations to the launch of the iPad mini – but if there is ever a sign that Apple value proposition needs more innovation not mimicry it has to be this new product.
At the close of play the S&P 500 was up 1.03% to 1454, the Dow rose 127 points or 0.95% and the NASDAQ rose 1.21%.
On the data front from the US the sentiment indicator for home builders was up again and sits at a 6 year high while industrial production rose stronger than expected at 0.4%
Remember what I always say, the persistence of the trend is your friend. I’ve been making bearish noises lately but it was a warning not an outright short position. However, in this low volatility world, if this trend does turn, watch out.
On FX markets the obvious excitement about the prospect of the ECB entering the bond market and buying Spanish bonds not only helped European stock markets but the euro as well. Having made a low yesterday at 1.2945 euro pushed up through 1.30 to a high of 1.3058 and sits just below that level now as I write at 1.3050. There are good reasons why this region might be solid support technically but if equities are going to continue to rally around the world then the US dollar is going to have less support than it has recently – but we are watching technical resistance.
With regard to the Australian dollar it is clear that the issues of lower interest rates, weaker growth, a poor global economic outlook and a market still most likely very long of Aussie that the correlation with stocks and the S&P 500 in particular is starting to break down. At least on a day to day time frame anyway. Yesterday’s RBA minutes were generally seen as quite dovish in that they set the scene for more rate cuts but that outlook is baked in the cake and so had little impact on the Aussie dollar in trade yesterday with the low of 1.0246 and the high just 1.0286 for a gain of 0.22% against the euro’s rise of 0.81%. We’ll discuss the technical outlook below.
Big night for commodities traders in cotton overnight with a jump of 3.37% after cotton supplies were reported to be at their lowest levels since 1995 at the same time that half the crop so far harvested is not meeting the futures market standards. Gold was up $9 oz. to $1746, crude was largely unchanged at $91.95 bbl, the Ags were quiet for a change and sugar rose 1.54%.
Lets have a look at some Met4 charts from my AVATrade platform.
EUR/USD: The EUR pulled up just below the recent range high which sits at 1.3069. This is a massive level as it is both the recent range high and also the level of an old trendline stretching back to May 2011. If we get a push through this level 1 of my systems will go long looking for an initial 100 point rally to 1.3160/70. JimmyR is positive and the ADX is also pointing to further gains so a break could be a strong one – but we always respect range tops and bottoms unless and until they break.
AUD/USD: The MACD indicator, or at least the way I use it, suggests the AUD should push higher but as you can see in the chart there is a confluence of important resistance. The high overnight was once again right on the 200 day moving average again for the 3rd time in a week and this also coincided with the downtrend line from the September high above 1.06.
A very interesting outlook – positive momentum is waning, but still suggesting some small upside. JimmyR is still suggesting lower prices in time. A run toward 1.0320/40 would still be consistent with this.
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Data: Westpac Leading Indicator for Australia today and then we’ll be watching US Housing data overnight – and of course anything to do with Spain.
Here is a snapshot of where markets sat this morning at 7am from MT4 at AVATrade
Twitter: Greg McKenna . He is the Chief Investment Officer of Macro Investor, Australia’s independent investment newsletter covering trades, stocks, property and yield. Click for a free 21 day trial.
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