Stocks extend their rally, Aussie testing highs

Quick Recap

Ok, so maybe last night’s rally in US stocks wasn’t exactly a slam dunk but it was a seriously good performance that has taken the S&P 500 up around 7.5% from the September lows.

That recovery has completely changed the feeling in traders guts each morning when they come into the office, sit down at their desks, or open up their lap top to start the days trade. Sentiment is a key thing in markets, it’s just as fundamental as economic data.

So, while traders may still be nervous and are not at all euphoric this is the bounce we had to have after the crash in August, retest and support in September and is a natural consequence of markets baouncing back and looking for the level of resistance.

We haven’t found it yet. Earnings season will be vital.

Looking elsewhere overnight the Dow and Nasdaq were also higher as was all of Europe. The rallies in Europe were however very cautious as they closed before the Fed minutes were released (see below in other news) and the fact that Germany released data showing that it had its worst month of exports since the financial crisis.

Thewashup today for ASX traders is that we should have a solid day on the local market after yesterday’s Asian induced disappointement. Overnight trade on the SFE shows that the SPI 200 December futures are up 62 points at 5,256 suggesting a rally of around 1%.

But, the fact that the US looks good, that oil (+4%) and energy ripped higher, that the CRB commodity index is higher and that there are enough mixed messages in the Fed minutes to forestall the first rate hike, along with the solid rally of BHP and Rio in London last night suggests the rally could exceed futures trader expectations.

Looking at forex markets the Aussie had a cracker rallying with the US dollar weakness pre-FOMC minutes. It has tested the top of the recent range again – I’ve had a look at the outlook and thrown in a chart below. Euro is higher as well and the Pound managed to rally even though the BoE was read as somewhat dovish by forex traders initially given concerns about China and emerging markets.

Also worth noting is that earnings season is underway. this morning Alco reported its results to kick things off – with a miss.

The overnight scoreboard (8.27am AEST):

• Dow Jones Industrials +0.82% to 17,075
• Nasdaq Composite +0.41% to 4,810
• S&P 500 +0.88% to 2,013
• London (FTSE 100) +0.61% to 6,374
• Frankfurt (DAX) +0.23% to 9,993
• Tokyo (Nikkei) -0.99% to 18,141
• Shanghai (composite) +3% to 3,144
• Hong Kong (Hang Seng) -0.71% to 22,354
• ASX Futures overnight (SPI December) +62 to 5,256
• AUDUSD: 0.7249
• EURUSD: 1.1277
• USDJPY: 119.91
• GBPUSD: 1.5346
• USDCAD: 1.3012
• Nymex Crude (front contract): $49.67
• Copper (US front contract): $2.3575
• Gold: $1,139
• Dalian Iron Ore (January): 376.5(denominated in CNY)
• US 10 year bond rate: 2.10%
• Australian 10 year bond rate: 2.67%

On the day

Tonight UK trade is out and then in the US there is plenty of Fed speak with Fed presidents Lockhart and Evans both speaking with both voters on the FOMC this year. US September import prices are “likely to remind the market of the continuing deflationary impact prices from the strong dollar,” de GAris says.

There could be some interest in the Canadian dollar tonight with the release of their September labour force report.

CHART OF THE DAY: Aussie Dollar

Yesterday in my Asian Trading wrap I wrote:

On forex markets the Aussie dollar pulled back as expected today. What I mean is as I expected this morning when I looked at the price action overnight. My thoughts, as articulated in my Video Wrap on YouTube this morning was that the AUDUSD would dip back to 0.7170ish today for a buy level. I’m small long for a short term trade.

We’ve touched the top of the recent range which is a normal place for the Aussie to respect so time to cut the position in half.

But the chance of running up and through are growing.