6 things Australian traders will be talking about this morning

NYSE Traders – Spencer Platt GettyImages

There is positive news for a change this morning as stocks in the US have rallied strongly along with the price of crude oil.

This helped reverse the acute fear that gripped Asian and European markets yesterday and which sent the ASX 200 deeply into the red with a fall of 1.56% to close at 4,909.

But the 227 point rally in the Dow overnight and the 1.86% surge in the S&P 500 has turned the tide for Australian stocks with overnight futures markets pointing to a much better day’s trade today. The March SPI200 contract is up 45 points, 0.9% to 4,923.

Elsewhere on markets, the more positive tone has helped the Aussie dollar climb off the overnight low of 0.6911, just 22 points from the 2015 low, back to just under 70 cents today. Forex traders are naturally wary after recent volatility but it should be a better day for the Aussie. The dilution of fear in markets has weakened the yen a little. But besides the Kiwi, down 0.5% at 0.6473, the US dollar is only mildly stronger.

Besides the rally in oil commodities more broadly, with the exception of gold, were higher. Copper is up 1% to $1.9765 a pound, iron ore futures in the US are up a little while the rest of the base metal complex was higher in London.

So, the scoreboard (8am):

  • Dow: 16,379, +227 (+1.41%)
  • S&P 500: 1,924, +34 (+1.86%)
  • SPI200 Futures (March): 4923, +45 (+0.9%%)
  • AUDUSD: 0.6983, +0.0029 (+0.42%)

And now the top stories:

1. The Big Australian is back – BHP shares surge 6% in London. BHP was a stand out on the standout on the ASX yesterday. Uniquely among the big caps, it rose on massive volume while all around it fell. Overnight it surged 6% in London trade. Why? Because not everyone is bearish the stock given so much bad news is priced into the current price. And to help things along, Morgan Stanley upgraded BHP to a buy yesterday.

2. The ASX is going to bounce today, but Morgan Stanley says it will end 2016 lower.While one group of analysts at Morgan Stanley are getting bullish BHP, another group is warning that overall stocks on the ASX 200 are about to have their “second year of negative capital gains”. They’ve also downgraded their target for the end of the year from 5,150 to 4,800.

But there is a silver lining. The analysts imply that investors using a Ben Graham or Warren Buffett style approach might be able unearth some solid returns as the ASX 200 index undergoes its own “transition”.

3. It’s all about crude oil and energy stocks – that could be good news. Chinese currency market ructions hit sentiment again in Asia yesterday but it was crude oil, and Brent trading below $30 a barrel, which really weighed on sentiment.

But crude is up overnight, 2% in Nymex terms to $31.08 a barrel and 2.28% in Brent terms to $31.00 a barrel. That’s good news for the energy sector on the ASX today and BI US’s Akin Oyedele quotes Deutsche Bank’s Torsten Slok saying if you’re selling stocks because of oil, the worst is probably over.

4. Contrarian BUY signal. Yesterday’s price action in Asia felt like a capitulation trade. The sort we need for a bounce and the sort of price action that saw me write in my AxiTrader afternoon report yesterday “I just want to buy, to go against all this fear and panic that has gripped markets in Asia today.”

It’s a theme BI UK’s Ben Moshinsky picked up on in a piece of Credit Suisse research which showed that when their global “risk appetite” index falls into panic territory, opportunities arise. Times like these “can be very good news for investors who have the stomach for some risk, for a short time at least,” Moshinsky wrote. “Where there is panic, euphoria can’t be very far away.”

Speaking of contrarians, Warren Buffett is still buying up oil stocks.

5. Contrarian stock traders might want to be quick. Something ominous has happened in US stocks – going against the current market might be tactically rewarding. But it seems that those traders who are coming from the buy side might need to keep their stops close and their targets not too optimistic.

That’s the message Myles Udland from BI US has in a piece this morning citing NYSE floor governor Rich Barry citing NYSE legend Art Cashin’s morning note. Cashin has access to some data that shows US stocks have only had two 10% corrections within a short time frame on three occasions in history before now – 1929, 2000 and 2008. Tin foil hat time, traders.

6. China still has its training wheels on. China’s currency management regime is confused, and a little confusing. That’s because it has to manage two markets, one onshore – the official one, and one offshore, the unofficial one. Keeping the onshore market, inside the Chinese financial system, is challenging but achievable for China’s central bank, the PBOC, at present. Trying to manage the free-wheeling offshore market is more problematic for the PBOC given this is where the world trades the Chinese yuan.

In no small part, yesterday’s carnage on Asian markets was a direct result of the PBOC releasing the vice-grip it had on those traders who had sold the yuan by letting interest rates return to normal levels on Wednesday afternoon and yesterday.

This is central banking 101. When you squeeze shorts by driving rates up, you need to keep them high. Let’s see what happens today.

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