The state of play
- Some interesting trading stats are currently catching my attention – for the last five days the peak of the ASX has come at around 12pm to 1pm before promptly being sold off all the way to the close. Three of the past five days have closed at the low of the day.
- The S&P is also producing an interesting stat: Only 23% of listed companies on the S&P 500 are above their 20-day moving average. Every time the S&P has crossed the 20% mark in the past six years it has bounced, and hard – we are almost there. So something to watch in the short term.
- Big news from the MSCI – The China A50 will be included into the MSCI emerging markets index. We have already seen a few excited investors buying into the news.
- However, there is no specific time as to when it will be added. The reason given? ‘MSCI expects to include China A‐shares in its global benchmarks after a few important remaining issues related to market accessibility have been resolved.’ No doubt, this is a very exciting development.
- Three issues to be resolved include: The quota allocation process, capital mobility restrictions and beneficial ownership. This left the MSCI to conclude – ‘[MSCI] recognizes the significant progress to date and ongoing reform efforts. China A‐shares will remain on the 2016 review list for potential inclusion into Emerging Markets.’ So we are some months off.
- The bond market continues to be the ‘exciting’ space (something not normally associated with bonds, considering their perceived ‘safety’).
- The US ten-year added a further five basis points (bps) overnight to a 12-month high of 2.43%. That is also a breach of the highest level reached during the ‘taper tantrum’. Conclusion: The Fed funds rates will rise in 2015; the market is telling you so.
- Bunds are now within four bps of 1% having added a further eight bps to the near 100 bps added since Bill Goss called them the ‘short of the century’ a mere six weeks ago. Gilts are now at 2.11%.
- The Australian bond moves have been just as staggering. Before the May rate cut all bonds up to the five-year were sub the cash rate at the time of 2.25%. Now none of them are under the cash rate with the two-year at 2.09%.
- The ten-year has added 60 plus bps since the April low and is testing the downtrend resistance level of 3.1%. There isn’t any major resistance till 3.5%. If borrowing rates hit this high the business confidence numbers seen yesterday will evaporate – and fast!
- The RBA might want a steady cash rate for a more conducive lending environment – bond markets, however, are giving that idea a squeeze as borrowing rates jump towards unfavourable levels.
- Keep an eye on 5411 and then 5397 – At 5411 all year-to-date gains in the ASX evaporate. 5397 is the 10% correction level from the intraday high on 3 March.
Ahead of the Australian open
Glenn Stevens is addressing the economic society of Australia at 12.50pm today – he’s unlikely to say anything of substance. However, if he is ‘overly’ neutral rate expectations will swing further to the centre and we’ll see the AUD shifting up. His Q&A can always throw up a curve ball.
We are currently calling the ASX flat at 5465. The big C is edging closer.