Rally Hoo, stocks and crude oil rip higher, Aussie catches a bid

Quick Recap

Another solid night of rallies on stocks in the US and Europe sets up more strength for local srtocks today while the increase in risk appertitie takes Mr MArkets foot off the Aussie dollar and other commodity currencies a little. I’ve been giving an economic poresentation for the last couple of hours but it’s interesting to see how littel all the market ructions have effected real people and the real economy so far.

That’s good news because even though it has occupied a lot of time of traders, the media and strategists in the past week it hasn’t hurt businesses yet.

But a protracted bear market might.

That’s what Soc Gen’s uber-Bear Albert Edwards things might happen. He’s 99.7% convinced that we are already in a bear market. Myles Udland from BI US reports this morning that:

In his latest note to clients, Edwards warns that the recent snapback rallies we’ve seen in the stock market are merely headfakes and that stocks are probably headed lower.

In his note, Edwards references a model developed by his colleague Andrew Lapthorne, which incorporates macroeconomic and fundamental equity variables, and which currently indicates a 99.7% probability that we are in a bear market.

So the sellers won’t be far off if he’s right, it seems.

But while i agree 100% that prices will be lower again once this recovery runs out of steam the reality is that the US economy is still doing well. That tempers my uber bearishness on stocks significantly.

Last night US GDP came in with a solid print and returns pressure on the Fed to act. One of Australia’s most senior fund management CIOs told me the other day that he thinks the Fed still has to act in September because they have backed themselves into a corner. The result of not acting could be worse than taking the long-telegraphed first move higher in interest rates since 2006. The 3.7% print was pretty solid and converts to around 0.9% for the quarter if expressed in Australian terms. One bright spot was the growth in personal consumption and non-residential fixed investment.

Stan Fischer’s speech at Jackson Hole over the weekend is super important.

The overnight scoreboard (6.27am AEST):

• Dow Jones +2.27% to 16,654
• Nasdaq +2.45% to 4,812
• S&P 500 +2.43% to 1,987
• London (FTSE 100) +3.56% to 6,192
• Frankfurt (DAX) +3.18% to 10,315
• Tokyo (Nikkei) +1.08% to 18,574
• Shanghai (composite) +5.4% to 3,085
• Hong Kong (Hang Seng) +3.6% to 21,838
• ASX Futures overnight (SPI September) +97 to 5,283
• AUDUSD: 0.7169
• EURUSD: 1.1250
• USDJPY: 120.97
• GBPUSD: 1.5403
• USDCAD: 1.3207
• Nymex Crude (front contract): $42.76 BOOM!
• Copper (US front contract): $2.32
• Gold: $1,126
• Dalian Iron Ore (September): 433 (denominated in CNY)

On the day

On the data front today, we get a raft of data from Japan. This includes, retail trade, CPI and unemployment. Jackson Hole is on in the US and we’ll all be waiting to see what Stanley Fisher says over the weekend. Tonight we get UK GDP, Euro economic and business sentiment along with German CPI. In the US, we’ll also get the release of core personal consumption expenditure.

CHART OF THE DAY: Crude – what a bounce

10% in one day is a phenomenal move even in these wild times on markets. As with other asset markets this is a snap back from an acutely oversold region. Based on the way this chart looks we could see another $2 at least before we get resistance.

Yesterday I said the ASX 200 looked like it had furher gains ahead and that is what we have seen. Recovery in action – resistance at my fast moving average and then my slow moving average around 5,400.