Stocks around the globe were mixed overnight with gains on continental Europe but small losses in London and New York. Overnight futures in Australia have the SPI200 pointing higher today.
Data in the US was on the weaker side of the ledger but that didn’t stop the US dollar from pushing higher again. But the Aussie and Kiwi were stronger and are at the top of the G10 leaderboards this morning. On commodity markets, oil is marginally higher, copper is down around half a per cent, gold has rallied $10 an ounce but iron ore in China and in New York is weaker.
First the scoreboard (6.28am):
- Dow: 17,784, -14.19 (-0.08%)
- S&P 500: 2,088.27, +1.84 (+0.09)
- SPI200 Futures: 5,200, +14 (+0.3%)
- AUDUSD: 0.7236 +0.0043 (+0.56%)
And now, the top stories:
1. The RBA’s last meeting for the year. Practically no one expects the RBA to move rates today when it meets for the last time in 2015. Governor Glenn Stevens told an audience of economists last week that they should all “chill out” and see what the data looks like in the new year. But that doesn’t mean that today’s meeting is a non-event.
TD Securities chief Asia-Pac strategist Annette Beacher thinks there is a chance that the governor reintroduces rhetoric suggesting he wants a lower Aussie dollar. That’s because Beacher says the Aussie dollar’s strength is completely out of line with iron ore’s continued falls. The ANZ has a similar view. We’ll know at 2.30pm AEDT.
2. China just joined an elite currency club. It’s official. The International Monetary Fund has just designated the Chinese yuan as an official reserve currency by including it in the special drawing rights (SDR) basket of currencies. The yuan joins the US dollar, euro, Japanese yen, and British pound in this exclusive club and the IMF has given it a weighting of 10.92% in the basket.
As BI US colleague Linette Lopez points out that doesn’t mean money managers are going to rush out and buy the yuan. But it’s important in what it says to the world about China, its path of reform, the path to economic liberalisation, and it is a shot in the arm to President Xi’s economic reform programme. Longer term these are all positives. And, this move is likely to be every bit as important to the Chinese economy longer term as when the nation joined the World Trade Organisation in 2001.
But in the short term, the path of economic and financial reform is an uncomfortable one. It’s also one that poses a risk to markets as yesterday’s again fractious trade on Chinese commodity and stock markets showed.
3. What does the yuan’s inclusion in the SDR basket mean for the Australian dollar? The Aussie dollar was higher last night, defying US dollar strength and inflation data yesterday that suggests the door is more ajar for an RBA cut in 2016. Perhaps they focused on the chance Australian GDP could surprise everyone. Or given the high was at the London fix, perhaps it was month-end fund buying.
But the Aussie’s short term moves are just noise against the background of a rising prominence of the yuan in global forex markets. Some argue that the impact will be bad for Aussie dollar trading as global investors will increasingly be able to trade directly in yuan and no longer need to use the Aussie as a China proxy. That’s probably true. But equally with China slowing an ability, or desire, to trade the yuan directly can take a weight off the Aussie and see it rally more than many anticipate.
4. Dick Smith and BHP. Two Aussie icons came under pressure yesterday. Dick Smith shares were dumped, losing more than 50% of their value on poor sales and forward guidance. Traders will be hoping that the troubles at Dick Smith are not indicative of an overall weak retail sales environment but simply company specific.
The big Australian, BHP, was also under pressure, losing 3.6% to $18.09. That’s back at the GFC low as news that Brazil is likely to impose big fines on BHP and Vale after the Samarco tailings dams burst. But BHP says independent analysis shows the mud from its Brazil mine disaster isn’t toxic.
Either way, here’s the sorry tale of BHP in one chart:
5. Is the US economy already past its sweet spot? Data overnight was on the disappointing side of the ledger and retail stocks were slammed as traders worried that weaker than expected Black Friday sales show the economy not as robust as some thought. That’s important because the words that accompany the Fed’s widely anticipated first rate rise at its December 16 meeting are in many ways more important for traders than the actual rate rise itself.
Last night there was a big miss in the MNI’s Chicago purchasing manager’s index with the data for November plunging to 48.7. This was much weaker than the 54 the market expected and the October print of 56.2. It suggests a sharp slowdown in business manufacturing and overall business activity in the Midwestern US. Pending home sales also rose less than expected and even though factories in Texas are hiring like crazy, the Dallas Fed manufacturing index remained in negative territory with a better than expected -4.9 print.
The Fed tightening is top of mind for the moment. But it’s what they will say which is now important to traders.
6. Vale Jonah Lomu. There is not a dealing room in the country that doesn’t have a large cohort of rugby supporters. So there is a fair chance there will be a lot of chatter about the epic haka former All Blacks gave him as a send-off. BI US has put together a short video with the haka and a tribute to the world’s greatest ever rugby player. You can view it here.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Fortescue Metals (FMG.ASX)
With iron spot iron ore prices capitulating, technically oriented investors will no doubt be checking the charts for some guide on how far iron ore stocks might fall.
In Fortescue’s case, 3 levels look potential candidates to me at this stage:
• Around $1.80 which is the 78.6% Fibonacci retracement of the $1.58/$2.65 rally and also picks up other swing projections.
• The previous low around $1.58
• A potential downward sloping support line that intersects around $1.40.
The fact that the RSI momentum indicator shown in the box below the chart has broken below 50% points to the possibility of ongoing downward momentum for a while yet.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC