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6 things Australian traders will be talking about this morning

Image: Brett Hemmings / Getty Images.

The Dow eked out a new closing high for 2016 with a gain of 0.09% to 17,229.13. But the S&P 500 slipped back slightly. These relatively small moves are not surprising given the proximity of this week’s FOMC meeting. But they are impressive in the sense that the weak Chinese data on the weekend and the 3% fall in crude oil could have given the bears an excuse to hit the bid.

No doubt the continued ebullience in European stock markets helped keep the Dow and S&P strong. The DAX rallied 1.62% and was above 10,000 at one point. In London the FTSE rose 0.6%.

In the end though the local market has followed the quieter US moves and the 11 point rise in the SPI 200 June contract suggests a fairly benign start to the day today. That said, the big fall in crude and the dip in commodities more broadly could weigh on some sectors of the market.

Elsewhere the Aussie dollar has slipped back from around 0.7580 as the Australian day ended. It was under 75 cents earlier this morning and it is sitting at 0.7504 at the moment. Like stocks, the Aussie looks like a consolidation might be in the offing.

Here’s the scoreboard (7.48am):

  • Dow: 17,229, +16 (+0.09%)
  • S&P 500: 2,020, -3 (-0.13%)
  • SPI200 Futures (June): 5,170, +11 (+0.2%)
  • AUDUSD: 0.7504, +0.0052 (-0.75%)

The top stories:

1. The ASX failed to break yesterday – what’s next?
The ASX was looking so good at one point yesterday. Trading at 5,214 the 200 index looked like it had finally slipped the grip of the 5,150-5,200 resistance zone that had proved so strong last week. But the strength proved short-lived and the market slipped back to close at 5,185. Not a terrible performance but one that likely disappointed the bulls.

Overnight the Dow had its highest close for the year but the broader S&P 500 slipped back a few points. That leaves the SPI 200 March and June contracts up 4 and 11 points respectively implying another mildly positive day for local traders. But with crude, copper, and iron ore down mildly overnight it could be a slow start. Technical traders might tell you yesterday’s move was a shooting star – and that means the ASX might drift a little as we head toward the FOMC meeting.

2. Wondering what’s concerning global investors right now?
Here’s the list:
You have to love the big global investment banks and their reach. Overnight Barclays released its latest survey of 585 global investors. It’s a great summary of everything that’s worrying the world’s biggest money managers and I was going to write it up today but Lianna Brinded beat me to it overnight.

It’s worth a look but a few things stood out. Concerns over China and emerging markets have fallen substantially over the past 3 quarters, concerns over credit markets have grown out of nowhere this year, and negative interest rates are viewed as, well, negative.

Oh, and speaking of negative rates here’s William Watts from Marketwatch’s interesting article: Bank of Japan in a bind after negative-rates backfire.

3. Crude pulled back on Monday night – here are a couple of reasons.
Last week I mentioned that there was rising interest in the December 2017 crude futures contract suggesting that producers didn’t believe the rally would last. Well it seems producers have gone the full monty and helped depress prices because of “rampant” hedging of future production. Akin Oyedele has a great wrap of a note from Morgan Stanley’s Adam Longson explaining what’s going on.

Looking specifically at the overnight move though and Iran seems to be wearing a fair share of the blame for the 3% fall in the price of brent and Nymex crude. That’s after the Iranian Oil Minister Bijan Zanganeh killed all hopes of joining Saudi Arabia, Russia, Qatar, and Venezuela to freeze oil production, Matthew Nitch Smith reports.

4. The Fed won’t tighten this week but it can spook markets.
I know this is a bit of a theme of mine at the moment but I reckon there is a real chance that the market is underpricing the Fed’s determination to raise rates in the US as the labour market tightens. That sets up a potential hawkish surprise this week after the FOMC meeting if that determination turns to words and a dot plot.

While the team at Macquarie Research haven’t addressed the FOMC meeting directly in their latest Global Macro Outlook they argue that the Fed will hike rates 3 times this year because inflation is ‘much firmer’ than perceived.

Speaking of the Fed, Akin Oyedele reports one economist thinks nailing the Fed’s next move comes down to answering 3 questions right.

Oh, and on inflation US consumer inflationary expectations are starting to climb.

5. Goldman Sachs says we can all relax about the massive fund flows out of China. China will see over $700 billion of capital pour out of the country in 2016, according to Goldman Sachs. But the bank says there’s no need to worry that continuing outflows will lead to a currency crisis any time soon.

Will Martin has detailed coverage of a comprehensive note. Goldman isn’t trying to put lipstick on a pig. But it’s worth a read as a counterpoint to the China doomsaying.

Of course China does have some real issues as David Scutt points out. The biggest uncertainty from China’s industrial restructuring is what will happen to bad debts.

6. The end of stock buybacks is a good thing. Company management is nothing if not a shareholder value maximiser – or at least that’s the way it usually works. That’s because the incentive structures for management – and their hold on their roles – are usually tied to a steady upward trajectory of the stock price. So depending on the economic and market environment, company management will tend to either invest in the physical aspects of the business via capital expenditure and new product development or it will invest in the financial aspects of the business by buying back shares. It can of course do a mix of both depending on the outlook. But the key here is that company management wants the same things shareholders do – a higher stock price.

That’s by way of background to another article I noticed, which says the end of buybacks in the US could lead to more capital expenditure at US firms. That has to be a good thing if it works out that way. Bob Bryan has more here.

And the overnight data round-up (courtesy BNZ Markets)
NZ: Perform. of services index, Feb: 56.9 (55.4 prev)
JP: Machine orders (m/m, %), Jan: 15.0 (1.9 exp)
NZ: Non-res. bond holdings (%), Feb: 68.3 (67.6 prev)
EZ: Industrial production (m/m, %) Jan: 2.1 (1.7 exp)

Have a great day. You can catch me on Twitter.

And now from CMC Markets’ Ric Spooner is today’s Stock of the Day

Telstra

There was a lot of debate yesterday about Telstra pulling out of its proposed joint venture to provide wireless communications in the Philippines. Demonstrating the financial discipline required to jettison the deal when it couldn’t negotiate favourable terms is a positive. Missing out on a strategically attractive growth opportunity is a negative, leaving a bigger query over Telstra’s growth outlook.

The market’s initial verdict was positive. Telstra outperformed the market, gapping higher and finishing up 2.3% on the day. The next major chart hurdle looks like being the potential resistance of its old support line and the 61.8% Fibonacci retracement. These intersect around $5.38-$5.44.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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