US trade and IMF growth downgrade dominate trade, Aussie rallies

Quick Recap

Oil is the big story in terms of price overnight with a rally of more than 5%. But it still hasn’t quite taken out the highs seen during the recovery from the acute market funk we saw in August. That is tempering my outright bullishness on other markets and is reflective of the type of trading we saw across marekts overnight.

To wit, stocks in the US were mixed with the Dow up a smidge on the back of the solid 7.66% rally in Du Pont after the company’s CEO said she was leaving. Elsewhere in the US though bio stocks were under pressure which pushed the Nasdaq lower while the S&P 500 also ended in the red.

In Europe though it was another good night as stocks continue their recent outperformance against those in the US. That mixed night has helped the SPI 200 suggest that today should at least start out on a positive footing for the ASX 200 when the physical market opens.

The energy rally and the overall improved tone in commodities which saw copper hold the pervious nights gains, the CRB overall gained close to another 2% and gold is back near $1,150 along with the fact that iron ore futures in the US were up again and have now been market almost $2 a tonne higher than the recent low will help the local market as well.

Or at least it should.

On forex markets the big blow out in US trade data (to $48.3bn from $41.8bn) which saw analysts thing again about downgrading their US GDP expectations helped the Aussie and other currencies, and of course commodities, push higher. That’s seen the Aussie at its highest level since September 21st back above 0.7150. The Euro and Pound were also higher even though Attril says that there was “an unexpected slump in German factory goods orders (-1.8%) seen symptomatic of weak global demand conditions and not – as yet – impact from the VW emissions scandal.” The Yen is calm but the CAD and NOK are both benefitting from the rally in oil.

One other thing worth noting, as I highlighted at Business Insider this morning is the move lower in the CBOE Volatility Index.

Another sign that things may have taken a trun for the better is that the Chicago Board Options Exchange Volatility Index (VIX) has dropped below 20 for the first time since late August. That tells us some fear, and hopefully lots of volatility, is being washed out of the market.

That’s positive for the Aussie dollar against the US dollar and on the crosses and it’s ultimately positive for stocks if earnings season, which starts this week, is better than many forecast.

Here’s the chart:

investing.com-CBOE-Vix-Index

Elsewhere last night the IMF downgraded it’s growth rate for 2015 to 3.1% and 3.6% in 2016. That doesn’t sound terrible but they see the outlook as clouded by 3 powerful forces are threatening the global economy. It all adds up to lower global growth for longer they say.The overnight scoreboard (8.46am AEST):

• Dow Jones Industrials +0.08% to 16,790
• Nasdaq Composite -0.69% to 4,748
• S&P 500 -0.36% to 1,979
• London (FTSE 100) +0.43% to 6,326
• Frankfurt (DAX) +0.9% to 9,902
• Tokyo (Nikkei) +1% to 18,186
• Shanghai (composite) Closed – last at 3,053
• Hong Kong (Hang Seng) -0.1% to 21,831
• ASX Futures overnight (SPI December) +6 to 5,174
• AUDUSD: 0.7157
• EURUSD: 1.1268
• USDJPY: 120.23
• GBPUSD: 1.5227
• USDCAD: 1.3033
• Nymex Crude (front contract): $48.53
• Copper (US front contract): $2.3625
• Gold: $1,146
• Dalian Iron Ore (January): 366.5(denominated in CNY)
• US 10 year bond rate: 2.03%
• Australian 10 year bond rate: 2.61%

On the day

On the data front today Australia see the release of the AiGroup performance of construction index as the only material release. In Japan we get a BoJ monetary policy statement along with the conincident and leading economic indexes. It’s a holiday in China again but that doesn’t stop the release of China’s FX reserve data later today. Tonight in Germany industrial production is out along with French trade and UK manufacturing data. In the US its third tier data.

CHART OF THE DAY: USOIL (Nymex)

Oil ripped higher last night with a rally of more than 5% to $48.96 a barrel overnight. That was on the back of an upgraded forecast for a tighter balance between supply and demand in 2016 from a US government agency last night.

In truth though, recent price action in the oil market has been suggestive of a bounce as I’ve been talking about for a while now. While many markets tried to retest their August lows in the last week of September crude was pretty solid in the post-bounce range. That meant there was solid buying in the mid to high $43 range.

Looking ahead oil has been trading in a range but traders will be watching closely if it can break out of its box.That’s important for so many markets if it happens, and could be a sign the August/September weakness is due for a further reversal across financial markets. It has to break first however.