6 things Australian traders will be talking about this morning

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It was a cautious close to the quarter on US markets overnight as traders await the release of US non-farm payrolls tonight. That’s left the Dow and S&P down marginally while stocks in Europe were lower.

That’s left the June SPI200 down 20 points, 0.3%, suggesting a little weakness on the local market today when the ASX opens for the new quarter.

On forex markets, the Australian dollar made another new high for this run with a move to 0.7721 but it’s back at 0.7660 this morning. Likewise, euro climbed above 1.14 before easing back to 1.1380. Again this caution is likely related to the release of non-farms tonight.

On commodity markets, the breaking news is that oil had a quiet night and is holding above $38 for the moment. Gold is at $1231, copper dipped to $2.18 a pound and iron ore futures in New York were a little lower.

Here’s the scoreboard (7.24am):

  • Dow: 17,685, +32 (-0.18%)
  • S&P 500: 2,059, -9 (-0.2%)
  • SPI200 Futures (June): 5,046, -20 (-0.3%)
  • AUDUSD: 0.7664, -0.0005 (-0.07%)

Now, the Top Stories

1. Will the RBA try to talk down the Aussie dollar next week? Westpac says no. The Aussie dollar is up 7% since the last RBA board meeting. By any measure that’s a big move and it doesn’t look finished yet. Ordinarily you’d forgive the RBA for getting titchy about such a leap. That’s especially the case when the momentum for further gains is starting to build given Fed dovishness and continued monetary ease around the globe.

But David Scutt reports Westpac chief economist Bill Evans says there’s little chance RBA governor Glenn Stevens will up the ante when it comes to placing downside pressure on the Aussie, indicating that he doesn’t expect the governor to make any significant changes in April’s monetary policy statement.

He said traders need to “remember that central banks are inherently conservative institutions. We expect that, like ourselves, the RBA will be sceptical about the recent recovery in commodity prices and, more importantly, like ourselves, still expects the Federal Reserve to raise rates in June.”

2.After a wild first quarter, Australian stocks lost 4%. It could have been so much worse. At the depths of the selloff earlier this year, the ASX 200 was down 11% from the close on December 31. Of course, the market then bounced along with the risk rally globally but while the S&P 500’s rally has continued (13.8% higher than the low) and taken the index into positive territory for the year, local stocks have under performed.

Of course that’s because of a loss of faith in Australian banks, trouble at the miners and the heavy weight these two sectors have in the local index. So quarter on quarter, the local market is down 4% against the S&P’s rally of 1%. The question for traders is whether or not they are now more comfortable with the outlook.

ASX200 Daily (Reuters Eikon)

3. Standard and Poor’s put China on negative credit watch and say a downgrade could come as soon as this year. China could be downgraded as soon as this year, according to credit rating agency Standard and Poor’s which issued a warning on the nations debt and economic growth path overnight. The risk remains that China’s debt burden will continue to grow from “below 165% of GDP in 2016 to close to 180% by 2019,” the company said. That’s because it thinks China will try to support growth in the years ahead.

That means China’s “resilience to shocks limit the government’s policy options, and increase the likelihood of a sharper decline in trend growth rate”. I’ve got more here.

4. Speaking of China – stocks could rip higher on news MSCI is thinking of putting it in the emerging markets index. The FT reports that global index builder MSCI has revived discussion to include mainland Chinese shares in its emerging markets stock index. That would mean that investors who “track” the index have little choice but to buy the shares included. That’s problematic given Chinese government intervention in the market. Indeed, the FT highlights that “MSCI chose not to include Shanghai and Shenzhen listed companies — known as ‘A shares’ — to its Emerging Markets index last summer after investors expressed worries about their ability to buy and sell mainland shares.”

But “the reopening of the consultation follows the recently implemented changes by the Chinese authorities aimed at enhancing the accessibility of the China A shares market for international institutional investors,” MSCI said. But, given intervention and selling bans, it still feels like Chinese authorities have some way to travel before foreigners will be completely comfortable to follow MSCI should they include China in the index.

5. Here is a new indicator on the US economy you have to follow. Readers know that I’m a behavioural finance and economics guy. And while I know that anecdotes are not evidence, I also know that there are some little known and watched indicators of consumer behaviour which can be really powerful indicators of real underlying demand. In Australia, I like to break down into the retail sales index and look at the cafe and restaurant vertical.

So, with this in mind I offer you a scoop from the excellent guys over at Forexlive. Adam Button reports that the US Restaurant Performance Index bounced back in February.

As Adam says “Virtually no one follows this indicator but, in theory, it should be a great barometer of the economy. Eating at a restaurant is one of the most economically sensitive decisions”. Add this one to your arsenal.

6. Here’s your quick guide to Friday’s jobs report – the most important economic release of the month. If there is a challenge to the market’s dovish take on Janet Yellen and the Fed it will come tonight with the release of the non-farm payrolls for March. The market is expecting another strong result of 205,000 and the question for traders is whether that challenges the scenario laid out by the Fed chair that rates won’t be raised in a hurry.

The traders paying most attention will be forex traders who are lining up to sell euro, even though it keeps rising. I have no idea what the data will print but just remind that Yellen said the jobs market will remain strong when she mapped out her thoughts earlier this week. So a strong jobs number won’t change the outlook materially.

Key data for the past 24 hours (with thanks to BNZ markets)
NZ: ANZ activity outlook, Mar: 29.4 vs. 25.5 prev.
NZ: ANZ business confidence, Mar: 3.2 vs. 7.1 prev.
GE: Retail sales (m/m, %), Feb: -0.4 vs. 0.4 exp.
GE: Unemployment rate (%), Mar: 6.2 vs. 6.2 exp.
UK: GDP (q/q, %) Q4 F: 0.6 vs. 0.5 exp.
EZ: Core CPI (y/y, %) Mar A: 1.0 vs.0.9 exp.
CA: GDP (m/m, %), Jan: 0.6 vs. 0.3 exp.
US: Chicago PMI, Mar: 53.6 vs. 50.7 exp.

You can catch me on Twitter.

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

Origin Energy (ORG: ASX)

Origin has taken another step in the diversification of its energy sources towards renewables. Yesterday it announced a 15 year agreement to take the entire output of a new solar farm at Moree in Western NSW. The energy output will be enough to supply about 24,000 households.

In the meantime, pattern traders will be interested in Origin’s price chart. It’s developing a rising wedge pattern. The textbook development from here would be a rally to test the wedge resistance around $5.60 before falling away for a third time.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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