RBA day, no hang on it's Cup day

Quick Recap

Stocks bounced nicely overnight if somewhat unexpectedly given how things were looking as the Asian day drew to a close yesterday.

The strength in the US and Europe came from some good news on the manufacturing PMI front. Whereas China remains in the contraction zone the big data for the US and Europe showed not only expansion but also beat expectations. In summary the better prints on manufacturing PMIs in Europe, saw German, Italian and EU-wide data beat expectations, the UK (a huge beat) and the US (a small beat) also helped markets.

M&A news was also important and it has set up a better day for traders on the ASX today with overnight futures up 66 points, the best part of yesterday’s loss on the physical.  But, Iron ore has been crushed in the past 24 hours with Dalian down 2.49% and US futures off 2.29%. That might prove a small headwind for the ASX today But, I should be an otherwise positive session after strong gains in the US overnight.

Forex markets are going nowhere fast but on commodities  copper recovered after a dip yesterday when the Chinese markit PMI showed that the Chinese manufacturing sector continues to contract. But it’s back above $2.30 a pound this morning. Gold continues to dip however and is back at $1,133. Crude also gave back more than 1% last night.

So to the cup and the RBA.

On the cup for the third year in a row I’ve taken a statistical trip through the Melbourne Cup’s history to see if we can’t get a guide to this year’s outcome. Lightning hit twice over the past couple of years and I picked the winners but I confess to wondering this morning if I will be like Big Brown trying for the Triple Crown in 2008 or more like American Pharoah this year.

We’ll know later today – here’s my look at the runners, and my pick.

As for the RBA as I also wrote at Business Insider this morning.

Most traders will either have their positions set or will get them set and then head off on Australia’s unofficial public holiday for Melbourne Cup day. So after an early flurry things might go quiet until the RBA at 2.30pm AEDT. It’s not really a close call from where I sit. There are clear signs that the domestic economy is lifting with assistance of the lower dollar, strong employment and improved business conditions. That’s the point the NAB’s chief economist (markets) Ivan Colhoun made in a note yesterday. On the other hand I saw HSBC’s Australian chief economist Paul Bloxham on the ABC this morning saying that on the balance of probabilities, he thinks the RBA will cut. To do so, he implied, won’t hurt the economy and could help.

We’ll know at 2.30pm AEDT today.

Good Luck.

The overnight scoreboard (8.17am AEDT):

• Dow Jones Industrials +0.94% to 17,828
• Nasdaq Composite +1.45% to 5,127
• S&P 500 +1.19% to 2,104
• London (FTSE 100) +0.01% to 6,361
• Frankfurt (DAX) +0.93% to 10,950
• Tokyo (Nikkei)-2.1% to 18,683
• Shanghai (composite) -1.66% 3,326
• Hong Kong (Hang Seng) -1.19% to 22,370
• ASX Futures overnight (SPI December) +66 to 5,195
• AUDUSD: 0.7135
• EURUSD: 1.1010
• USDJPY: 120.73
• GBPUSD: 1.5411
• USDCAD: 1.3100
• Nymex Crude (front contract): $46.10
• Copper (US front contract): $2.3095
• Gold: $1,133
• Dalian Iron Ore (January): 352 (denominated in CNY)
• US 10 year bond rate: 2.18%
• Australian 10 year bond rate: 2.65%

On the day

We have Melbourne out for the Cup, the RBA decision at 2.30pm AEDT and then the big race at 3pm AEDT. Japan is out for Culture Day but otherwise it’s a very quiet 24 hours.

CHART OF THE DAY: German DAX

The DAX in Frankfurt was the developed market index which took the heaviest hit back in August and September. So it should be no surprise that it has been the best performer on the bounce back.

It’s extremely overbought on the dailies and as you can see in the chart below the weekly chart offers a guide as to where some serious resistance might be lurking.

I’ll be trading in front of the down trend line, which comes in at 11,101, unless or until it breaks.