Resource stocks and dollars rally heading into RBA meeting and US trade figures
Yesterday’s positive Asia Pacific momentum has continued through the European and North American trading sessions with bulls shrugging off generally soft service PMI reports. As we reach the latter stages of the weakest time of the year seasonally for stocks indices have been holding their August lows and starting to recover, an encouraging sign of support.
Commodity prices continue to recover on further indications that although China may be struggling it isn’t going completely off the rails as it would have seemed the way stocks were crashing six weeks ago. Also, the supply/demand balance in the US continues to improve as falling drill rig activity at a time it’s usually ramping up indicates lower shale oil prices are impacting exploration and supply.
With crude oil and copper on the rebound, oil and mining stocks have been climbing and could be active again in Australia. Glencore rose another 17.5% as it’s rebound continues pulling Canadian base metal miners First Quantum and Teck Resources up 17.0% and 10.2% respectively.
Suncor Energy’s hostile takeover bid for Canadian Oil Sands sent the bidder’s stock down 2% and the target’s stock up 50%. Speculation that this could be just the beginning of a wave of takeover attempts in the oil sands, Canadian Natural gained 7.8%.
Rising commodity prices have kept attention square on resource currencies with NZD, SEK, AUD, CAD and NOK the top performers on the day. Improving data out of Sweden indicate the potential for recovery as economies rebalance and see the effects of previous currency declines.
In addition to all of the attention on resource stocks AUD and Australia markets could be active around today’s RBA decision. The central bank is not expected to cut interest rates and a cut or more steps to aggressively talk down the dollar could come as a surprise. The reaction in NOK to last month’s surprise Norges Bank cut gives us an indication of what could happen if the RBA was to deliver a dovish surprise into a commodity rebound. In that case, NOK fell off sharply in the wake of the decision but has been recovering along with oil prices since then.
Tomorrow’s US trade figures could attract more attention than usual. Boston Fed President Rosengren suggested over the weekend that the softer pace of job growth could be due to some sectors nearing full employment. He also indicated a 2.0-2.5% GDP growth rate in the second half would be enough to warrant interest rate liftoff. The only thing is, GDP forecasts have been coming down following an advance trade report last week, so the street may look to tomorrow’s trade figures for confirmation or denial. This could spark another round of FOMC speculation in US stocks and USD.
There have been no major announcements after the US close today.
Significant announcements released overnight include:
Eurozone retail sales 2.3% vs street 1.7%
Sweden industrial production 4.7% vs street 1.5%
Sweden industrial orders 9.4% vs previous 10.6%
Sweden service production 1.9% vs previous 2.8%
Service PMI reports
US Markit service PMI 55.1 vs street 55.6
US ISM non-manuf PMI 56.9 vs street 57.5 and previous 59.0
US ISM new orders 56.7 vs previous 63.4
UK 53.3 vs street 56.0
Germany 54.1 vs street 54.3
France 51.9 vs street 51.2
Italy 53.3 vs street 54.1
Spain 55.1 vs street 58.7
Sweden 57.0 vs previous 52.4
Upcoming significant announcements include:
11:30 am AEST Australia trade balance street ($2.4B)
2:30 pm AEST Australia RBA interest rate 2.00% no change expected
4:00 pm AEST India service PMI previous 51.8
7:00 am BST Germany factory orders street 5.6%
8:00 am BST UK Halifax house prices street 9.1%
TBA Poland interest rate 1.50% no change expected
8:30 am EDT US trade balance street ($48.0B) vs previous ($41.8B)
8:30 am EDT Canada trade balance street ($1.1B)
9:15 am EDT FOMC George speaking
10:00 am EDT Canada Ivey PMI street 54.0
1:00pm EDT ECB Draghi speaking
5:30 pm EDT FOMC Williams speaking
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