daytrading july 12 afternoon

Afternoon all,

Thanks Endless, Gttrain, Trees and to all regulars.

Australian shares are set for strong early gains after world markets surged, with the Standard & Poor's 500 Index climbing to its highest closing level ever after Federal Reserve Chairman Ben S. Bernanke called for maintaining stimulus.

On the ASX24, the SPI futures index was 38 points higher to 4954. The Aussie dollar was lower at 91.93 US cents, down from 92.2 US cent late yesterday and more than a full US cent of the day's high. It was also buying 90.91 yen, 70.22 euro cents and 60.52 British pence.

What you need to know

•SPI futures are 37 points higher at 4953
•The $A is lower at 91.74 US cents
•In New York, the S&P500 was added 1.36% at 1675.02
•In Europe, the FTSE100 added 0.59% to 6543.41
•China iron ore added $US1.30 to $US125.20 a metric tonne
•Gold added 2.7% to $US1298.90 an ounce
•WTI crude oil lost $US1.61 to $US104.91 a barrel
•Reuters/Jefferies CRB index added 0.18% at 286.68

Making news today

In economics news today:

•ABS housing finance for May - 11.30am
There is no major companies news scheduled for today.

Analyst rating changes:

•Paladin Energy rated new hold at TD Securities
•Lynas upgraded at JPMorgan
•IINET cut to underweight at JPMorgan
•Retail Food Group cut to neutral at BBY
•Orica raised to strong buy at BBY

Offshore overnight

United States

The Dow Jones Industrial Average and S&P 500 have vaulted to new records after Federal Reserve Chairman Ben Bernanke pledged to maintain the Fed’s easy-money policy for the foreseeable future.

Key numbers:

•Dow Jones Indus Avg added 1.12% to 15,462.61
•S&P 500 added 1.36% to 1,675.16
•Nasdaq composite 1.63% to 3,578.30

Europe

European stock markets rose, mirroring gains across Asia after the Federal Reserve had indicated it was in no rush to end its huge program for stimulating the US economy.
Key numbers:

•London’s FTSE 100 added 0.59 % to 6,543.41
•Frankfurt’s DAX 30 added 1.37% to 8,158.80
•In Paris the CAC 40 added 0.74% to 3,868.98

Asia

Asian markets rallied after US Federal Reserve boss Ben Bernanke said its stimulus drive would be kept in place ‘‘for the foreseeable future’’, but Tokyo’s advance was capped as the yen surged against the US dollar.

Key numbers

•Japan's Nikkei added 0.39% to 14,472.58
•China's Shanghai composite added 3.23% to 2,072.99
•Hong Kong's Hang Seng added 2.55% to 21,437.49

Commodities

Energy

Global oil prices hit a 15-month high, boosted by signs of strengthening demand in the US and ongoing supply fears linked Egypt.

•In earlier trading, New York’s main contract, West Texas Intermediate for delivery in August, spiked to $US107.45 a barrel - a level last seen in late March 2012. It later stood at $US104.54, down $US1.99 from Wednesday on profit-taking.
•Brent North Sea crude for August rallied to $108.93 a barrel -- reaching a high last seen in early April 2013 - before pulling back to $US107.46, down $US1.05 from Wednesday’s closing level.

Precious metals

Gold futures have pushed to a two-week high, a day after Federal Reserve chairman Ben Bernanke said the US economy needs easy-money policies for the foreseeable future.

•The most actively traded gold contract, for August delivery, on Thursday rose $US32.50, or 2.6 per cent, to settle at $US1,279.90 a troy ounce on the Comex division of the New York Mercantile Exchange, the highest settlement since June 21.
•Silver surged to a three-week intraday high before paring its gains. Futures for September delivery settled up 4.1 per cent at $US19.956 a troy ounce on the Comex.
Base metals
The London Metals Exchange flagship metal copper closed higher, although it drifted from an earlier three-week high at the close of trading after the US dollar recovered from a dramatic slump.
•At the close of open-outcry trading, LME three-month copper on Thursday was 2.5 per cent higher on the day at $US6,999 a metric ton.
•Earlier in the session, it hit a three-week high at $US7,049.25, before tracking currencies including the euro lower against the USdollar to relinquish the $US7,000/ton mark.
•Aluminum was up 0.9 per cent at $US1,834.50 a ton.
How we fared yesterday

Australian stocks shot up by 1.3 per cent, with investors cheering comments out of the US that money would continue to be pumped into the world's largest economy.

At the close on Thursday the benchmark S&P/ASX200 index was up 64.3 points, or 1.31 per cent, at 4,965.7. The broader All Ordinaries index was up 61.5 points, or 1.26 per cent, at 4,946.9.

THE OVERNIGHT REPORT: CORRECTION OVER

The Dow rose 169 points, or 1.1%, while the S&P gained 1.4% to 1675 and the Nasdaq added 1.6%.

There is nothing new to report with respect to Wall Street last night that we didn’t already. Ben Bernanke’s soothing words (ie the US economy is not looking all that great) came after the closing bell on New York and Asian time zone markets became the first response team.

There remains an irony that over the past several months that neither the Fed policy statements, Bernanke himself nor any of the Fed heads have actually changed the tune. The central bank’s intentions remain exactly as they were earlier in the year: we will withdraw stimulus if the economy recovers as expected and add stimulus if the economy falters. But a new arrow has been added to the Fed quiver, that of greater disclosure/guidance. In today’s fast moving world of computers and algorithms, unbridled and unsubstantiated speculation has increased volatility to uncomfortable levels.

So it was that when stock prices and house prices pushed into what many considered overbought territory, driven by QE backing rather than earnings fundamentals, Bernanke decided to cool things down with the suggestion of a tapering timetable. It worked. Perhaps what he wasn’t expecting was the very severe correction in bond prices, with higher market interest rates (mortgage rates for example) themselves becoming an economic threat. How to put a cap on runaway bond yields? Remind the market that the US unemployment numbers really don’t look that good at all.

It’s all a bit of a balancing act, as we can see by last night’s market movements. Having hit 2.69% between the release of the minutes and Bernanke’s speech on Wednesday, the US ten-year bond yield has since fallen 11 basis points to 2.57%, with most of the fall occurring as Bernanke spoke. But the stock indices are now back to where they were in May, with both the Dow and S&P closing at new all-time highs and the Nasdaq at a 13-year high. Wall Street initially corrected on tapering talk, but later decided less QE implied a healthier economy which could only be a good thing. So the win-win theme continues.

There was one data highlight last night that did nothing to upset the rally. June US chain store sales showed a 3.9% year on year increase, which is the best result since January’s 4.5%. After January the numbers dropped on sequester measures being introduced. Those measures are still in place, but US consumers appear to have now adjusted to the fact.

Wall Street step-jumped higher on the open and basically stayed there all session, and was the last major market to have the chance to respond to its own central bank. Australia was first off the blocks yesterday and as the US dollar fell in late trading it was a case of “risk on” writ large. The day before we were all so worried about weak Chinese trade data. Yesterday the materials sector led the charge, eclipsing all other indices with a 3.4% gain as BHP jumped 3.2% and Rio jumped 3.7%. Unable to join in the fun were the healthcare and consumer staples sectors – the defensive.

The gold sub-sector definitely did join in the fun, given the US$31.40 rise in the gold price over 24 hours to US$1286.60/oz, which all occurred in the Asian time zone. Wall Street was only catching up. Well gold is no higher, but what we did see overnight was a 3% jump in the copper price. The LME had closed before Bernanke’s speech on Wednesday. In New York, BHP was up 6.0% last night and Rio 6.9%.

The Chinese stock market was also up yesterday, posting a 2013 record up-day of 3.2%. This seems at odds with the weakness in recent Chinese data, but maybe this Shanghai index chart holds some clues:

Here we can see the tail of the 2012 drift-off on slowing Chinese GDP growth, followed by a bounce on the regime changeover as the new team talked up its economic plans. The world, and clearly Chinese investors, were expecting fresh stimulus. By February it became apparent this wasn’t going to happen, and instead Beijing began clamping down on fraud, corruption and speculation, culminating in June with the short-term credit squeeze. After this week’s weak data economists are suggesting stimulus must come soon, and it seems perhaps Chinese investors are now assuming the same. They, too, can be “bad news is good news” traders. And technically, that’s a nice bounce off support.

The US dollar index tanked on Bernanke’s speech yesterday morning (our time) and is down 1.1% to 82.74. The Aussie traded well above 92 yesterday, but has settled back to be up 0.4% at US$0.9191. Base metals shot up on the open on the LME last night, but all fell back again to post negligible gains, except copper which breached the psychological US$7000/t mark. It won’t hurt the materials sector today that spot iron ore is up US$1.30 to US$125.20/t.

The oils eased off for once after a very strong rally over recent sessions, with Brent down US44c to US$107.54/bbl and West Texas down US$1.92 to US$104.60/bbl.

Housing and investment finance data are out today in Australia, while Japan will release industrial production data and Europe will follow suit tonight.

Alcoa is one thing, but most consider the US earning season to begin in earnest tonight as the banks begin to report, with JP Morgan (Dow) and Wells Fargo first off the rank. QE is la-la land, earnings are a reality.

Have a great day and a better weekend all!