Macro Morning: Stocks erupt

It seems Goldilocks is in the house again with the reinforcement of lower rates and the better than expected data in both Europe and the US driving stocks and the US dollar higher overnight.

We’ve seen a reaffirmation of low rates for the long term from the three big central banks (Fed, BoE and ECB) at a time when the European economy continues to print data on the stronger side of the ledger on balance and with a bit of improved US data at the same time. It is a recipe for stock market strength and that is exactly what we saw with new records.

At the close the Dow was up 128 pts or 0.83% , the Nasdaq rose 50 pts or 1.37% and the S&P 500 was up a stunning +21 pts or 1.26% closing above 1,707 and crucially they all closed around their highs of the day. Stocks in Europe also got a lift from US sentiment but their own improving data also closing on the highs of the day. In the UK and on the continent it was a sea of green with the FTSE up 0.92% the DAX rose 1.63% the CAC was 1.26% higher while stocks in Milan and Madrid were 2.04% and 1.26% higher respectively with all finishing strongly.

In Australia the SPI200 is currently up 41 so it is going to be a good day, or at least a start to the day and we’ll see what the actual budgetary announcement and the bank deposit levy does to the market.

Looking at the data, if we ignore Portugal the Markit PMI’s for Italy, Germany, UK, EU were all much better than expected although France missed by 0.1% while in the US the ISM manufacturing index fairly surged printing 55.4 against expectations of 51.5 for the best result in two years but just like the GDP data yesterday prices paid were lower than expected (49 v 53.8) – so the US just might be having a mini- Goldilocks moment which has to be good for stocks. Also out in the US was the jobless claims which dropped back to 326,000 from 346,000 previous.

On global fx markets the US dollar fairly soared over the last couple of days belting the euro, sterling, yen and Aussie. Last night the Aussie seemed to hold in better than most probably because it had already been pollaxed over the past few days. The yen however has really come back under pressure with a 200 point move overnight.

jpy, usdjpy, yen, dollar yen (jpy) price quote

As you can see in the chart above USDJPY broke down into a mini box on the 4 hour charts but is now back inside the bigger consolidation range we saw for a large part of the last month. You could argue its a nice little W – double bottom – and while it has probably achieved any target already decent resistance doesn’t come into play until around 100 which is the overhead trendline.

aud, audusd, australian dollar, australian dollar price quote, audusd weekly

I have had a target in the low 89’s for ages now and that was achieved in the past few days and the overnight low was 0.8906. Now while the pressure on the Aussie remains we know from the CFTC data, which is likely to be reinforced tomorrow morning, that the short term market is very short. That does not in or of itself mean the Aussie should rally but there is some support around current levels in terms of the long term daily trend. The actual trendline on the weekly chart above comes in at 0.8830/50 so we’ll see how it goes.

On commodity markets Nymex crude ($107.75) surged on the better data even though the US dollar strengthened for an incredibly strong result. Copper ($3.15 lb.) rallied 1.46% but gold has slipped back to $1310 oz. and our friends corn, wheat and soybeans were all under pressure again falling 2.40%, 0.94% and 1.18% respectively.

And of course we have 24 hours of trade left and still yet a monstrous out turn with the release of the non-farm payrolls tonight. Before that though we have Australian and European PPI and we also see personal income and consumption data in the US as well as the ISM in New York.

Good hunting and good luck today.