The reversal continues, stocks and risk appetite rise

Quick Recap

After weeks of looking weak it seems like it time for traders and markets to reverse some of their negativity now that the chances of a Fed hike are receding after a weak non-farm payrolls in the US on Friday night and services PMI’s seem to suggest that the best part of the US economic growth cycle for this year might have passed.

Indeed it looks like services PMI’s from Australia to the UK and the US were all still looking okay but a little weaker than previously. Of course that makes sense given the slowdown we are seeing in China and the recent market ructions. It’s only rational for people, businesses, to slow down purchases and spending.

But, there are plenty of column inches already being written about how ridiculous the bad news is good news meme is. I want to disabuse anyone, traders at least, of becoming caught up in that kind of rhetoric. The reason is that as a trader the market was ripe for a turn and the rhetoric (bad news is good for stocks and risk) is a reflection of what’s been going on in the price action.

That is we made significant lows in August across a number of markets and with the exception of perhaps the DAX and the Canadian dollar those lows held and now we are seeing a reversal away from them. Of course the CAD has reversed as hard as anyone and the DAX is powering higher again as well. That’s because their weakness was not confirmed in other markets.

So what we have are markets that needed to snap back. Whether sustainable or not only time will tell. But there have been some good trades in the past few weeks.

So it should be a good day for the ASX today. The Aussie dollar should rally up and through 71 cents again sometime this week. GBPAUD might even finally break down through big support and we’ll be watching crude as the big sign that the worm has turned if it breaks out.

The overnight scoreboard (7.28am AEST):

• Dow Jones Industrials +1.85% to 16,776
• Nasdaq Composite +1.56% to 4,781
• S&P 500 +1.84% to 1,987
• London (FTSE 100) +2.76% to 6,298
• Frankfurt (DAX) +2.74% to 9,814
• Tokyo (Nikkei) +1.58% to 18,005
• Shanghai (composite) Closed – last at 3,053
• Hong Kong (Hang Seng) +1.62% to 21,854
• ASX Futures overnight (SPI December) +66 to 5,207
• AUDUSD: 0.7083
• EURUSD: 1.1182
• USDJPY: 120.42
• GBPUSD: 1.5144
• USDCAD: 1.3093
• Nymex Crude (front contract): $46.31
• Copper (US front contract): $2.3610
• Gold: $1,135
• Dalian Iron Ore (January): 366.5(denominated in CNY)
• US 10 year bond rate: 2.05%
• Australian 10 year bond rate: 2.59%

On the day – Non-farms tonight

Looking to the data today and it’s RBA day here in Australia. Most pundits expect the RBA to hold firm again today but we’ll all be reading the statement carefully to see if there has been any change in expectations of growth. We also see the release of trade data for August and this morning we get the ANZ-Roy Morgan consumer confidence release. Offshore it’s factory orders in germany, house prices in the UK and trade in the US tonight.

CHART OF THE DAY: ASX 200 Breakout 

The ASX has broken out and is running higher as the S&P rallies, commodities push higher and the chances of  Fed hike in 2015 recede into the ether.

In many ways it’s  a reversal of sentiment as much as it’s a reversal of prices. But then, of course they go hand in hand don’t they.

5,234 is the top of the recent box the ASX has been trading in and then we have further resistance in the 5,273/5,309 region which hold my fast moving average on teh weeklies and the post August crash high.

Dailies and weeklies suggest that the market can push higher still.