6 things Australian traders will be talking about this morning

Is the rally over already? (Photo by Eduardo Munoz Alvarez/Getty Images)

The global risk rally ran into a wall overnight as the fall in crude oil dragged energy stocks on Wall Street lower.

The Dow is down around a quarter of a per cent, the S&P 500 around a half while in London the FTSE lost 1%.

That sets up a weaker open for local stocks on the ASX this morning with the March SPI200 contract down 24 points, 0.5%.

On forex markets the US dollar was stronger against the euro which is back below 1.11 while the Aussie and CAD were also weaker. The Aussie was mainly knocked by yesterday’s employment report which again highlighted the difficulty the ABS is having. It also undermines credibility in local statistics.

Gold rallied back to $1,234 and iron ore was up 0.34%.

Here’s the scoreboard (8.13am):

  • Dow: 16,413, -40 (-0.25%)
  • S&P 500: 1,917, -9 (-0.47%)
  • SPI200 Futures (March): 4,932, -24 (-0.5%)
  • AUDUSD: 0.7150, -0.0032 (-0.5%)

And the top stories:

1. ASX 200, not quite 5,000. What’s next? So close to 5,000 yesterday with the close on the ASX 200 up 109 points at 4,992. Every sector in the market was up except healthcare which only had a marginal fall.

What’s clear in the 6 month chart is that there are two trendlines that traders are keeping their eye on. The rally could stall here below 5,000/5,010. But as chartists know, a break would be a big sign for another leg higher.

ASX 200 Daily (Reuters Eikon)

If the market can’t break 5,000 it will naturally drift back looking for the level at which buyers want back in and then we are likely to establish a range for the local stocks markets to trade until the next big catalyst.

2. JP Morgan is making a strong case that the stock market sell-off is crazy. Forget humans and emotions for a minute and just look at the facts. That is essentially the message from JP Morgan Asset Management’s chief global strategist David Kelly who told Business Insider that there is an interesting disconnect between economic and market sentiment.

It’s a bullish case for stocks based on Kelly’s view of fundamentals. Liana Brinded has more here.

3.Bond gods versus equity trolls. Bond guys are fundamentally different to equity guys and girls. That’s because while the equity guys are out there talking up stocks and stock returns, looking at blue skies and the return on their money, the bond guys are doing something different. Bond guys invest their cash into debt issued by companies, governments and other entities and earn a rate of interest on that debt – strangely, markets call it credit. Bond gals and guys make capital gains and losses when rates fall or rise but, for the most part, they are interested in, often worried about, the return of their money. Not the return on their money.

These are subtle but extremely different mindsets. Often – the build up to the GFC for example – when bond guys forget about the return of their capital and focus on the return on their capital, bad things happen in markets.

So when Wall Street puts stock guys in charge of bond teams – it sets the scene for two tribes going to war. Matt Turner has more here.

4. Speaking of bonds, Uber bear Gerard Minack says you should buy them as a safe haven. Minack is the former Wall Street strategist at Morgan Stanley who built himself a reputation as a bit of a bear. Back living in Australia running his own firm, Minack continues to see a clouded outlook for markets in the years ahead. He also appears to agree with RBS’s big call from January to sell everything except bonds. Minack said he can’t see anywhere to “make people rich”. So buy bonds.

Paul Colgan has more here.

5. Sovereign wealth funds have been selling stocks, but not for the reason you think. This one is interesting because while sovereign wealth funds – think Norway, Saudi Arabia, Malaysia and Abu Dhabi’s big government investment vehicles – might have been selling stocks this year, it’s not because they are scrambling for liquidity as most people think. Victoria Barbary, a director of the Investec Investment Institute in London, reports that it might actually be because these funds are redirecting their investments from public to private markets.

That’s a good sign, as it suggests a slowdown in the selling and also a good sign for the funds as they better match assets and liabilities.

6. Negative interest rates are a dumb idea and won’t work. Negative interest rate policy, NIRP, is the new black for central bankers. But as BoJ governor Haruhiko Kuroda showed yesterday, they are fraught with danger. Kuroda was simultaneously talking out of both sides of his mouth to wholesale financial markets and retail depositors in Japan. That conflict in messages, we can go further negative but deposit rates won’t go negative, shows the difficulty of NIRP and the possible unintended consequences.

In this vein, Jim Edwards from BI UK has a great piece on why negative interest rates are a bad idea, not sustainable and are unlikely to work.

But wait, wait – Will Martin reckons we just got a sign that Sweden’s crazy negative interest rate experiment is finally working. So there’s that.

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

Telstra produced a steady but rather underwhelming profit result yesterday. Net profit was up 0.8% and analysts were fretting about increased costs in as yet unproven new business ventures. While there was a decent increase in mobile phone sales, margins are under pressure as competition intensifies.

However, the dividend was increased 0.5c to 15.5c and despite some concerns; the valuation is pretty undemanding at 15 times forward earnings.

Telstra’s chart is also arriving at an interesting place. It’s shaping up for another test of well-defined channel support. If it can hold this support line after going ex-dividend, it might just provide traders with another opportunity to buy, looking for a return to the channel resistance.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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