Stocks pause, Australian dollar selling continues, US GDP not as weak as it looks

Quick Recap

Stocks stalled last night as bond rates in the US rose as traders try to figure out what the heck the Fed’s December tightening might mean. The moves in bonds since yesterday morning while small in points are huge in percentage terms.

As I highlighted at Bi this morning.

Since the announcement yesterday morning US 10’s have risen around 15 basis points (7.4%), US 2 year rates have risen 10 points (16%). They are massive percentage moves for bond holders and provide another valuation challenge for stocks up at these levels. Australian bonds have escaped the selling because of the CPI and Aussie 10’s are at 2.59% down 10 points from the high earlier this week.

That’s huge. Imagine the headlines if the Dow, S&P, FTSE or ASX moved that much in 24 hours.

Anyway, what the price action tells me in the US and Europe is that even though the Fed mentioned the stronger economy, and even though US GDP showed the domestic economy was fairly solid, teh uncertaintry in the rest of the world, the new Chinese growth target of 6.53% and worries about what the Fed will do to markets is just giving traders room for pause.

You know my view.

Any one days trade is essentially noise but overall stock market  valuations are getting stretched again. Perhaps i’m not alone.

Speaking of US data though Akin Oyedele from BI US  reports that The Department of Commerce said in its release, “The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), state and local government spending, nonresidential fixed investment, exports, and residential fixed investment that were partly offset by negative contributions from private inventory investment.”

That is not a weak economy.

Anyway the wash up is the ASX is under a little pressure. US stocks were mildly in the red, Europe a little more so. The Aussie is still drifting as traders reprice for divergent expectations about the RBA and the Fed but the Euro and Sterling are recovering some of their oversold levels.

It’s still a very uncertain market and technicals and overbought oversold indicators are working nicely at teh moment. Somewhat short time frames fro some trades at the moment.

The overnight scoreboard (8.10am AEDT):

• Dow Jones Industrials -0.13% to 17,755
• Nasdaq Composite -0.42% to 5,074
• S&P 500 -0.04% 2,089
• London (FTSE 100) -0.65% to 6,395
• Frankfurt (DAX) -0.29% to 10,800
• Tokyo (Nikkei) +0.17% to 18,935
• Shanghai (composite) +0.38% to 3,388
• Hong Kong (Hang Seng) -0.6% to 22,819
• ASX Futures overnight (SPI December) -15 to 5,224
• AUDUSD: 0.7073
• EURUSD: 1.0970
• USDJPY: 121.12
• GBPUSD: 1.5307
• USDCAD: 1.3164
• Nymex Crude (front contract): $45.74
• Copper (US front contract): $2.321
• Gold: $1,145
• Dalian Iron Ore (January): 363.5 (denominated in CNY)
• US 10 year bond rate: 2.17%
• Australian 10 year bond rate: 2.58%

On the day

On the data front today it’s all about Japan. Not only is vitally important CPI, unemployment, vehicle, construction and housing data out but the BoJ also announces its decision on monetary policy. Is it too soon more more accommodation in japan? Maybe but it feels like more QE is coming.

Retail sales in Germany tonight will be watched closely as will the PPI in Fance, GDP in Spain, CPI and PPI in Italy and EU wide employment and CPI data. All of these will help inform expectations about what mario Draghi is want to do at teh next ECB meeting.

In the US personal consumption and spending dat along with the employment cost index are vital for thinking about the chances of a December Fed hike.

CHART OF THE DAY: ASX200 – Back in its BOX

The bulls would have been disappointed yesterday  would have been price action on the ASX. But technical traders would have known the level  to watch for the market to slip back within its trading range. Last night’s small move lower has now bough prices just 20 points above the little uptrend line I have drawn in here.

So for me today the support zone on any selling is 5225 (the line) and 5237 (my slow moving average).

If these levels break then the way opens for some ugly selling. But they have to break first.