6 things Australian traders will be talking about this morning

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Whether in Europe, the US or on Australian and Asian futures markets, it was a sea of red setting up a tough day at the office for the bulls.

The ugly end to the week Friday, for stocks and the energy sector, has put pressure on the ASX futures market, leaving the SPI 200 down 1.5% at the close of business Friday. Key to the move is continued worry about the Fed and the impact of what it might do this week.

Add in the continued crash in oil prices, which accelerated into week’s end, and a trend break (see below) and traders are set up for a down day.

Bond traders in the US and elsewhere had a better day but the Australian dollar was pressured on all fronts. Commodities, China’s surprise basket announcement (see below) and the risk aversion floating out of stock markets all weighed to leave the Aussie at its lowest close this month.

It’s all about the Fed this week, more what they say and what they say they will do than the actual move higher in rates that the market now expects. But that’s not till Thursday morning, so we could have a volatile few days.

Thankfully, Chinese data over the weekend might mitigate some of that weakness.

So, the scoreboard (8.04am):

  • Dow: 17,265, -309.54 (-1.76%)
  • S&P 500: 2,012.37, -39.86 (-1.94%)
  • SPI200 Futures: 4,948, -73 (-1.5%)
  • AUDUSD: 0.7203 -0.072 (-1%)

And now, the top stories:

1. Stock on the ASX are going to have a tough day today. With the S&P 500 down 1.94%, SPI 200 futures off 1.5%, and global pre-FOMC stock market sentiment pessimistic, it’s likely to be a tough day at the office for stock traders on the ASX today.

If prices fall as far as futures suggest, that will see the market break the uptrend from the September lows and could accelerate the selling from some traders.

ASX200 – Daily (Reuters Eikon)

2. BHP may not be able to keep paying its dividend. The BHP share price crashed to its lowest level since 2005 last week. But after trying to recover, it again faltered into week’s end as the commodity rout continued. But things could be about to get worse for the company, if you listen to the growing chorus that its dividend policy could go from helping to hurting the company’s share price. That’s the view of the analysts at Deutsche Bank who released a little note over the weekend linking the BHP dividend, Anglo American’s demise and BHP’s free cashflow to wonder aloud whether BHP can keep paying more than its free cash flow generates. You can read more here.

3. The Fed decision is here. The waiting is done, the goose is cooked, the cake is baked. So it’s time for the Fed to finally raise rates in the United States for the first time in 9 years. But traders have already moved on, they “know” the Fed will raise rates. What they’re interested in now is the statement that accompanies the move, what Janet Yellen says at her press conference and what the all important Fed Dot Point chart says about the expected path of interest rates.

We’ll know at 6am Thursday. Here’s Goldman Sachs’ take on what they reckon the Fed will do.

But just because the market knows the Fed is going to move doesn’t mean that traders will take it in their stride. A top JP Morgan strategist thinks the Fed has “misunderstood a rate hike’s effect on markets”.

4. Chinese data and the yuan are getting very interesting. Stocks were down Friday and the bets would be that Asia would be in a complete funk this morning after the PBOC said it is going to change the yuan peg from the US dollar to a basket of currencies. That implies it wants more weakness than the 4 year lows the yuan slipped to at the end of last week.

It’s a move to avoid potential yuan appreciation against China trade competitors and for customers once the Fed starts raising rates if the US dollar, as anticipated by many, appreciates. That will increase pressure on other emerging markets if the yuan becomes more competitive.

But that dose of potential bad news came with a decent sugar lump of data releases for retail sales, industrial production and urban investment over the weekend. So much so that this analyst says “the doomsayers will need to find another target”. Stocks in Asia will still be under pressure today, but not as much as they could have been.

5. Crude oil continues to tank. If the Aussie dollar can just hold firm for a while, Australian motorists might be able to buy petrol at the pump near the $1 mark again soon. That’s because the crude oil price continues to collapse. Last week, in the wake of the OPEC decision to keep pumping, Nymex crude dropped more than 11% and at the lowest level since the GFC low in December 2008.

But the weakness in prices, and prospects for $1 petrol (E91 unleaded at least) were given another kick after the International Energy Agency said Friday, “World oil markets will remain oversupplied at least until late 2016 …although the pace of global stock builds should roughly halve next year.”

6. The week ahead is huge. In Australia, we get the RBA minutes, the federal government’s mid-year fiscal update, global data and of course, the Fed at 6am AEDT Thursday morning. That not only sets up the week and end of year, but in many ways, will give a pointer to what markets might do in 2016. Here’s my Australian diary: Everything you need to know about the week ahead for markets.

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

Costa Group (CGC: ASX)

Although the ASX 200 index is weak and the “market” is generally discussed in these terms, it’s remarkably difficult to find corrections of any significance to buy into good quality growth stocks.

Fruit and vegetable grower; packer and marketer, Costa Group is a case in point. It will be added to the ASX 200 at the end of this week and has been holding around new highs at $2.80. In fact it closed there on Friday and put in a bullish green engulfing candle.

Still, as a potential buyer looking for better value, all you can do is be patient and act if there is an opportunity. For those in that category, the Costa chart is showing signs that the current rally might be getting a little tired. The price looks to be in the 5th and potentially final leg of the latest rally. If it does show any signs of weakness before too long it will also complete bearish divergence with the RSI momentum indicator in the box below the chart.

If all that comes to pass, we may only see a period of sideways consolidation but you never know. These are the circumstances that can set up for a downward correction.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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