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6 things Australian traders will be talking about this morning


The big surge in the price of crude oil, which rose around $1.50 a barrel in the hour after 2pm New York, helped lift stocks higher in the US overnight.

That’s left the Dow up 1% and the S&P 500 up 0.6% at 1,940 with around 30 minutes of trade left in the US session.

After a disappointing day yesterday for the ASX, the March SPI 200 futures contract is up around 0.3%, suggesting a slightly better day ahead. Globally, bank shares did a little better last night so that could help the big four again today as well.

Elsewhere, the rally in crude has taken it back above $33 a barrel. According to CommSec chief economist Craig James that’s because the Venezuelan oil minister said, “the South American nation together with Qatar, Russia and Saud Arabia have agreed to hold a meeting in mid-March”.

On forex markets, except for the Canadian dollar which surged more than 1%, it has been a fairly quiet night. The Aussie is solidly up from its lows yesterday around 0.7157 at 0.7236 this morning.

Gold remains elevated at $1,235 but copper fell back to $2.08 a pound.

Here’s the scoreboard (7.25am):

  • Dow: 16,642, +158 (+0.97%)
  • S&P 500: 1,945, +15 (+79%)
  • SPI200 Futures (March): 4,856, +18 (+0.4%)
  • AUDUSD: 0.7234, +0.0038 (+0.54%)

And the overnight data round-up (courtesy BNZ)
NZ: Net migration (seas.adj.), Jan: 6130 vs. 5510 exp.
AU:Private capex (q/q%), Q4: 0.8 vs. -3.0 exp.
UK: GDP (q/q%), Q4 P: 0.5 vs. 0.5 exp.
US: Durable goods orders (m/m%), Jan P: 4.9 vs. 2.9 exp.
US: Dur. goods ex trans. (m/m%), Jan P: 1.8 vs. 0.3 exp.

Now the top stories:

1. The Australian stock market is tubby and stout and here’s two ways it can play out.
Hats off to Evan Lucas at IG for finding a new way to describe a range trading market. He’s called the ASX “tubby” and “stout” and it’s spot on. While he reckons the most likely way it will play out is more range trading, there is a risk of a capitulation before the market gets fundamentally cheap.

I’ve wrapped his thoughts here.

2. On heck of a step down. A top US stock analyst just cut her end of year forecast from 2245 to 2100. Akin Oyedele reports that “we now have yet another analyst at a major firm lowering their expectations after the year started on a sour note”. Wells Fargo equity strategist Gina Martin Adams cut her forecast due to lower oil prices and a flatter yield curve in anticipation of slower economic growth.

But she says the main thing that can drive stocks higher is a recovery in earnings. In this economy? Good luck with that Gina. You can read more here.

3. This hedge fund strategy is all the rage and it tells you investors have no idea what’s going to happen in markets. Originally the term “hedge fund” meant exactly that. One position in the stocks market was offset by another position so the trader had a market neutral position – she was hedged. The return she earned came from the movements of the two stocks and the overall portfolio of hedged positions. Fast forward 40 or 50 years and “hedge fund” is just a generic term for the pure alpha hunting traders who employ many different strategies to make their returns. But there is no hint of a hedge in their portfolios as a rule – they are taking outright positions.

But the original concept is back – market neutral funds are attracting 32% of new money being allocated into hedge funds, Julia La Roche reports. And that means “investors clearly can’t make up their minds about where stocks are heading in 2016.

4. More and more banks are talking about recession globally and in the United States. I’m not exactly a contrarian, but I certainly do trade against conventional wisdom when I can identify a skew. And I’ve noticed a lot of chat about recession lately, in the notes hitting my inbox, stories on BI, and other places. So I thought I’d google it to see if we might have hit “peak” recession. (screenshot)

Searches for “recession” are the highest they have been in three years but given the global economy looks like it’s the most fragile since 2009, my guess is we are a long way from peak pessimism.

And as if on cue. Wells Fargo says there is a 23.5% chance of recession in the next six months AND, economists at Citi are worried about a global recession.

Oh and Deutsche Bank’s excellent Jim Reid says all the bad things he thought would happen next year might be getting pulled forward into 2016.

5. World trade contracted for the first time since 2009. Here’s a good reason we haven’t hit peak pessimism yet in markets. The data increasingly supports the hypothesis the global economy is not looking too good.

The FT reports this morning that “the value of goods that crossed international borders last year fell 13.8 per cent in dollar terms — the first contraction since 2009 — according to the Netherlands Bureau of Economic Policy Analysis’s World Trade Monitor”.

Much of the slump in trade is, naturally, due to a slowdown in China and other emerging economies.

6. BUT, this top investment pro thinks emerging markets could be the trade of the decade. Speaking of contrarian traders, here’s a gutsy one. According to Christopher Brightman, chief investment officer of Research Affiliates, a subadvisor to PIMCO, “the exodus from emerging markets is a wonderful opportunity — and quite possibly the trade of a decade — for the long-term investor”.

He reckons there’s a chance not only to make double digit returns but triple digit returns. That’s not a typo.

You can read Bob Bryan’s piece here.

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

JB Hi-Fi

Buyers piled into JB Hi-Fi when it was announced that Dick Smith will be closed down and not sold.

This looks like good news for JBH. Apart from the obvious removal of a competitor, JBH is likely to be in poll position to take over the lease of suitable Dick Smith sites. That could be a new source of growth over and above its existing new store program

The stock finished up 6% and near its high.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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