The S&P cash market rallied 1% on little news, although the fact that China seems to be in a better space has been noted as a driver. Internet and social media names rallied strongly, and with 86% of stocks moving higher, the gains were clearly broad-based. The US stock market closed one point from the recent all-time intra-day high and clearly this is a market that wants to push higher. Long positions are preferred, given the trend.
All European equity indices look bullish right now and a positive open is expected this afternoon. Traders will be keen to see if the FTSE can break the year’s double-top just below 6900, however the real prize will if the index can break the 1999 all-time high of 6950. Staying long on this market for a break of 6900 could be a strategy.
Having been stopped out of my EUR/AUD long suggested trade, short positions are now favoured. The pair looks set to print a lower low, with a break 1.4653 looking likely. Overnight we saw China’s financing numbers, with aggregate financing coming out at RMB1.55 billion, slightly above expectations. At 15:30 today we also get China’s fixed asset investment, industrial production and retail sales, so this could also prove to be somewhat of a catalyst. Naturally the Australian budget (out at 21:30 AEST) will be in focus, with the market still feeling the budget will pose short-term pain in order to tackle deficit.
Consumer stocks in general will be very interesting today with traders positioning ahead of tonight’s Australian budget. A number of the measures have been pre-leaked, but we could still easily get some surprises. Expectations are that the underlying budget deficit for 2014/15 should be for a deficit of around $26 billion, which would be $8 billion lower than the original estimates from the governments Mid-Year review of $33.9 billion.
Ultimately fiscal policy should be tightened by around 0.25% of GDP, which when combined with other measures should lead to total fiscal drag of 0.50%. It seems logical that this budget will be fairly austere in a bid to front load the fiscal tightening, in a bid to put the Abbott government in a tidy position to ease policy through targeted tax cuts as we head into the 2016 elections. Some traders would say an austere budget is largely in the price, however it will be interesting to watch price action in the consumer space today as last minute positioning plays out.