Stocks surge, Kiwis cut AUDNZD through the roof

Quick Recap

Stocks surged higher last night on a combination of factors including the fact the S&P held an important technical level the previous day, better noise from Greece (notwithstanding S&P’s after hours downgrade), and a weaker US dollar.

As highlighted at Business Insider this morning

Peter Cardillo, chief market economist at Rockwell Global Capital, told MarketWatch that “the market rally is mostly due to a combination of three things: the S&P 500 held its support level on Tuesday, the dollar weakened and oil rallied as well as some positive news from Greece.

What appears to have happened in the past couple of days is that in the the wake of the G7 meeting its clear that some chat was had about global threats and imbalances.  As I highlighted yesterday afternoon it’s my sense that the Japanese have been told enough is enough when it comes to weakening the Yen. Ken Courtis, ex of Goldman and now Chair of Starfort, thinks the US has also put pressure on France and Germany to get a deal down on Greece lest another “fire” ignite on NATO’s flanks. Geo-politics trumps everything, always.

Forex traders had an amazing afternoon yesterday. The Aussie dollar initially fell out of bed on the back of Glenn Stevens’ speech which explicitly left the door open for another rate cut. But then the concerted verbal intervention in the yen which kicked off after Bank of Japan chief Haruhiko Kuroda suggested that it’s “very weak”drove the yen and Aussie dollar sharply higher. As if that wasn’t enough, Kuroda was joined by comments from BoJ board member Sato and Japanese finance minister Aso. That suggests that the G7 might have had a somewhat forthright discussion about how aggressive Japan has been in this global currency war. Elsewhere, the euro is up a little but the pound is up aroound 1%. The Aussie and Kiwi were up a similar amount before the RBNZ easing. Since then however the Kiwi has been slammed and is off more than 2% at 0.7050. That’s dragged on the Aussie a little but AUDNZD shot up through 1.10 at one point. It’s sitting at 1.0950 now.

On commodity markets oil is up again as data released last night showed the sixth straight week of falling stockpiles. The recovery in oil, even though it’s only in the $60 region, is important in explaining the sell-off in bonds over the past few weeks. Fears of deflation now seem completely and utterly overblown. The US dollar move helped gold a little at $1,186 and looking less sick – I like gold even though the technicals are still poor. Copper rose more than a per cent to $2.77 a pound and Dalian Iron ore ripped to a new high of 450.

On the day

On the data front today, the May jobs report in Australia takes centre stage. The market is looking for an increase in jobs of around 15,000 and a steady inflation rate of 6.2%. Industrial production and retail sales in China are important as are retail sales in the US tonight.

ALSO – Watch Shanghai today. MSCI said yes to Chinese stocks just not yet. So the market could, perhaps, get slammed today.

Here’s the overnight scoreboard(6.00am AEST):

• Dow Jones up 1.33% to 18,000
• Nasdaq up 1.25% to 5,076
• S&P 500 up 1.21% to 2,105
• London (FTSE 100) up 1.13% to 6,830
• Frankfurt (DAX) up 2.4% to 11,265
• Paris (CAC) up 1.75% to 4,934
• Tokyo (Nikkei) down 0.25% to 20,046
• Shanghai (composite) down 0.15% to 5,106
• Hong Kong (Hang Seng) down 1.12% to 26,687
• ASX Futures Overnight (SPI June) +55 to 5529
• US 10 Year Bonds +4 points to 2.48%
• German 10 Year Bonds +2 to 0.98%
• Australian 10 year bonds +2 to 3.11%
• AUDUSD: 0.7760
• EURUSD: 1.1324
• USDJPY: 122.67
• GBPUSD: 1.5528
• USDCAD: 1.2259
• Crude: $61.18
• Gold: $1,187
• Dalian Iron Ore (September): 450

CHART OF THE DAY: AUDNZD – You’re not in Kansas anymore Dorothy. It’s a long way from parity

So many times in my career over the past 25 plus years I’ve heard and seen the excitement around the Aussie Kiwi parity party. It never lasts and it’s a darn long way from parity here at 1.0950 this morning.

Downtrend broken 1.13 seems a reasonable target. Support is obvious