It’s all quiet on the markets front this morning with no residual impact from Friday’s news the FBI is re-investigating Hillary Clinton’s mail use during her time as secretary of state.
US markets have essentially shrugged it off with stocks largely unchanged, the US dollar in recovery mode and bonds largely unmoved.
Part of the recovery in sentiment has been a rally in the Australian dollar which is back above 76 cents this morning. But, having put on 0.64% yesterday, the ASX is likely to open a little lower according to futures traders who have the December SPI down 9 points.
Elsewhere crude oil collapsed another 3% as news broke that OPEC production increased last month and traders doubt a deal will actually get done. Gold is largely unchanged but copper and iron ore are higher again.
Here’s the scoreboard (6.38am):
- Dow: 18159 -2 (-0.02%)
- S&P 500: 2127 0 (+0.03%)
- SPI 200 Futures (December): 5,282 -9 (-0.2%)
- AUDUSD: 0.7605 +0.0025 (+0.33%)
The top stories
1. It’s RBA day – no change is expected but that does not mean it’s a non-event. Around a quarter of the 27 economists polled by Bloomberg last week said they saw a chance of a rate cut today but Reuters says only 10% of the 60 it polled think a cut is on the cards. Certainly the market hasn’t priced a cut which would tend to reduce the chances of a surprise.
But governor Lowe’s statement is going to be pored over by economists and traders to see what he says about inflation, the slowdown in the jobs market, and of course the re-acceleration in house price growth in Sydney and Melbourne.
2. Speaking of housing, S&P has joined the chorus worried about Australia’s housing market. Credit rating agency Standard and Poors yesterday extended its negative outlook on banks to a number of smaller financial institutions in Australia, Chris Pash reports.
The firm has added 25 names to the list on negative watch and said:
In our opinion, economic risks facing all financial institutions operating in Australia are rising due to the strong growth in private sector debt and residential property prices in the past four years, notwithstanding some signs of moderation in growth in recent months.
Their base case is prices and debt moderate. But S&P sees a “one-in-three chance that the strong growth trend will resume and economic balances will continue to build, which in our view would increase the risks that a sharp correction in property prices could occur”.
3. If you want to know what is going on in China, then you have to read this post. Leland Miller is the founder of China Beige Book, a highly coveted survey of what’s going on with China’s economy. He sat down with Linette Lopez to discuss the situation in China.
It’s a sobering outlook but Miller doesn’t believe the banking system will blow up the way hedge funder Kyle Bass says it will. Not in Western terms anyway.
4. Markets are betting the email scandal won’t move the needle on the US Presidential election. That’s a risk. The ASX defied every other market again yesterday, rising 0.64%. That was despite falls in Asia and before falls in Europe. It was a subtle sign, along with a recovery in the US dollar, the Aussie’s lift back above 76 cents and the fact that bonds in Australia didn’t rally, that markets aren’t fazed by the re-emergence of the email scandal.
But Allan Smith reports that Trump is mounting a comeback in the polls – the conventional ones – while I discussed yesterday the alternative approaches which have Trump as the likely winner.
But markets are complacently betting on the status quo remaining. It’s something to think about and watch because while the balance of probabilities still seems to run with Clinton it seems there is little preparation for a shock.
5. And here’s two reasons Trump could get up. Steve Schwarzman, CEO of alternatives giant The Blackstone Group, has a great take on why the “middle class” anger is feeding Trump’s rise (and others across the planet). He told Bob Bryan “the middle class — whether it is in the US, Europe, or almost any democracy — has not had a good experience, particularly since the financial crisis. As a result of that, they’re unhappy, they’re angry”.
And why wouldn’t they be, Schwarzman says, when a recent Fed study found 46% of Americans can’t cover an unexpected $400 expense if it were to arise.
PayPal founder and tech billionaire Peter Thiel is an avid Trump supporter and thinks the Republican party is being remade. But Allan Smith reports he echoed Schwarzman’s thoughts, saying in a National Press Club speech overnight that “Not everyone is hurting. In the wealthy suburbs that ring Washington, DC, people are doing just fine. Where I work in Silicon Valley, people are doing just great. But most Americans don’t live by the Beltway or the San Francisco Bay. Most Americans haven’t been part of that prosperity”.
“It shouldn’t be surprising to see people vote for Bernie Sanders, or for Donald Trump, who is the only outsider left in the race,” he said.
6. This is exciting – the CEO of Xero says AI will be ‘transformational’ for finance. Bankers are pretty excited about the prospects for blockchain but Xero’s boss Rod Drury told Business Insider in a recent London interview that “we’ll see more innovation in the next 2 years than we have in the 10 years, all driven by AI”.
“If you capture information from the bank statement and the invoice and the bills that are flying through, you can actually programme things to do a whole lot of work for you and you’re just checking and making fixes, which trains the machine,” Drury said.
He’s of course talking about accounting but the general principle will be portable across many areas of finance driving productivity – but also likely cause some financial sector job losses.