The see saw pattern of trade continued last night with Europe on a tear early and the rally continued even though the data on balance stills speaks of economic weakness. The US markets joined the party but were nowhere near as strong at the close.
The last 24 hours saw the release of a host of PMI’s across a wide range of companies and countries which give a feel for a global economy still under pressure but doing a little better than many hoped. Houses and Holes covers the data in this piece today but importantly for markets was the strong bounce in the US ISM. As you will recall the Chicago PMI on Friday was a shocker – but it was in contrast to other regional surveys that were released last week – so the much better than expected national PMI which jumped to 51.5 from 49.6 last month with most pundits expecting it to still print below the 50 contraction line.
Europe kicked off the strong trade in our afternoon focussing on the Spanish bank bailout numbers from Friday even though some of the country based PMI’s like France were shocking and then they reacted to the much better than expected US PMI to close strongly in the black. The FTSE closed up 1.37%, the DAX up 1.53%, the CAC rose 2.39% while Madrid was up 0.92%. Interesting story on Reuters this morning about Spain and the bailout – essentially it says Spain is ready to ask for help but that Germany is stalling it for the moment due to political considerations with the Bundestag. Interesting development and one to watch but not overly material I wouldn’t think unless it is a full blown German opposition to a Spanish bailout which would be a surprise given recent moves and agreements with Draghi’s plan.
In the US, markets were stronger on the back of the ISM data but caught a bit of a chill once Ben Bernanke started speaking. It was one of his better speeches and he took on his critics fairly nicely and Joe Weisenthal from BI has done a good wrap of the speech and what it means. At the close of play the S&P 500 was up 0.27 to 1444, the Dow rose 0.58% but the NASDAQ was 0.09% lower after Apple shares lost 1.2%.
On commodity markets, the Ags were at it again and while corn was fairly flat rising just 0.07%, wheat and soybeans fell 2.06% and 2.60% respectively. Crude and gold were both fairly flat.
On currency markets, early upward pressure by the US dollar gave way to weakness once equity markets started to rally. The Euro rallied strongly off the 1.2808 low yesterday t0 a high of 1.2934 and sits now at 1.2885. The Australian dollar likewise pushed sharply higher off its low of 1.0329 pushing to 1.0399 and it now sits at 1.0358. The key here is that the euro did not break down through 1.28 meaning the US dollar on the other side has yet to break topside resistance so the summary would be range trading continues in FX markets.
For the Aussie today’s RBA meeting is obviously important both in terms of what they do and what they say. But this is only at the margin because I remain of the view that unless or until you see a material equity market pull back the Aussie will continue to be well supported – this was the gist of my article yesterday which if you missed it you can find here.
EUR/USD: 1.2800/12 remains the key short term support for the EUR and the ADX suggests it is still in a down trend. Below 1.28 support is 1.2733 which is the 38.2% retracement of the recent up move.
AUD/USD: 1.0300/20 looks like it is significant support and a level to be watched if you are looking for points of inflection. For mine the ADX is slighthly negative but unless or until 1.03 gives way then AUD is just bouncing up and down. A break of 1.03 however could signal 1.0150/60
Data: RBA is the highlight domestically then service PMI’s in Europe and the US ADP employment report as a precursor to non-farm payrolls on Friday.
No data snapshot sorry – password again of 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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