A somewhat volatile night for stocks offshore. Europe was sharply higher but things turned a little sour once US stocks entered the fray.
Once Europe had exited, the bears took the market into the red before the buyers emerged again.
But while the buyers rescued US stocks from midday weakness, commodities have had another poor night. Nymex crude traded under $30 a barrel at one point but is still down 2.8% after recovering 60 cents off the lows. Copper dipped 0.8%, iron ore futures were down again and miners and energy stocks came under pressure. BHP lost close to 3% in London trade.
But even against that backdrop, futures trade on the ASX SPI200 contract suggests a better day ahead after the ASX completed its 8th day of falls yesterday. The March SPI is currently up 25 points.
On forex markets, the pound fell after some weak economic data, the Aussie is sitting just below 70 cents but overall the big forex markets have been quiet.
So, the scoreboard (8am):
- Dow: 16,518, +120 (0.73%)
- S&P 500: 1,935, +11 (0.61%)
- SPI200 Futures (March): 4905, +25 (0.5%)
- AUDUSD: 0.6988, -0.0005 (0.07%)
And now the top stories:
1. Sell Everything. Redux. RBS has taken the almost unprecedented step of telling clients to “Sell Everything”. What’s remarkable about this is it is very uncommon for a bank’s strategy team to be so bearish, and for such a note hit the Street.
But in an interesting addition to the worries about the year ahead, the credit team at Bank of America Merrill Lynch appear to agree with their counterparts at RBS.
“It is our fear that many of the signs we see in high yield ultimately foreshadows further economic and risk asset malaise in 2016 and 2017,” the BoAML team led by Michael Contopoulos said in a note Monday.
The really sobering bit though is they say clients – investors – are not prepared. That’s a scary thought.
2. BHP downgraded. It’s been another night to forget for commodities and the big energy and mining companies are under intense pressure. BHP shares in London last night were down 2.86% after both Barclays and HSBC cut their outlook for the company. Barclays almost halved its price target to $10.50 and said investors should underweight the stock. HSBC similarly said investors should reduce their BHP weighting.
Local traders should take note that Reuters reported both firms expect the “dividend to halve, and highlight that co would still struggle to cover dividend given spot prices”.
3. Bargain hunters looking at buying stocks. Scott Schuberg, CEO of Rivkin Securities, has this week been reminding his clients of the axiom that stocks are for the long run. In a note yesterday he wrote: “I would counsel any investor to consider the opportunities that are being presented in a 3-5 year context.” It’s a theme BI founder Henry Blodget revisits often in his discussion about the outlook for the markets.
Rivkin’s Schuberg is not alone. Goldman Sach’s European equities strategist Sharon Bell told the BBC overnight that the equity slump has made stocks so cheap that it’s actually pretty attractive for medium term investors.
You’ll recall Eng Teck Tan from Nikko Asset Management told us Chinese shares are a selective buy as well. I asked him for a regional view. Here’s what he gave me:
Despite the bumpy ride with major transition underway, there is real opportunity for exposure to some very good companies trading at attractive valuations
4. China squeezed traders selling yuan with an old school vice. The monetary, financial market and foreign exchange framework that China has at its disposal is similar to that which existed in Australia and other nations 30 years ago. That makes it difficult for China to respond as efficiently to the many competing forces and market pressure as a nation like Australia or a central bank like the RBA.
But that doesn’t mean those old tools can’t be effective, as the PBOC showed yesterday by driving the interest rate on yuan offshore above 60%. That put the squeeze on yuan sellers who need to borrow the currency to support their bearish bets. It’s a classic old style squeeze. It was nicely executed and drove the offshore yuan rate sharply higher. David Scutt has the details here.
5. Crude oil traded under $30 for the first time since 2003. Sam Ro reports that earlier this morning “the price of a WTI crude oil fell to as low as $29.96 per barrel. This is the first time the price crossed below $30 since December 2003.“
Part of that weakness were comments from the UAE oil minister that the current OPEC strategy was working, says Craig James, Commsec chief economist. The price has bounced back to around $30.50 since the lows. But it’s clear the bears are in firm control. The question for traders – how low can it go?
6. What exactly is all the market turbulence telling us? Martin Wolf is the doyen of global market and economics writers. In his latest missive on FT.com, Wolf says the “bull market is dead. Since markets are already highly valued, that would not be surprising.”
But Wolf highlights that it is a massive global portfolio rebalancing that is the big issue.
Still more important, a portfolio rebalancing is under way. The most important shift is in the perceived economic and financial prospects for emerging economies. As a result, capital is now flowing out of emerging economies. These outflows are driving the strong dollar. Given that, the US Federal Reserve’s decision to tighten monetary policy looks like an important blunder.
Like the team at RBS, Wolf is worried about the global “credit bubble” and says that “another set of credit bubbles, that in emerging economies, is loudly popping. This is going to leave a legacy of financial shocks and, if mishandled, bad debt.”
What a year 2016 is.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Telstra had a nice bounce off channel support yesterday.
It’s now trading at an undemanding multiple of about 15 times F16 earnings. We are getting to the stage of needing hard evidence that the Chinese economy is deteriorating significantly to justify lower prices for stocks like this.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC