6 things Australian traders will be talking about this morning

Getty/Christian-Petersen

A solid night for stocks in the US and Europe overnight which suggests another strong day on the local market.

In Europe, the FTSE rose 1.93%, the DAX was 2.71% and the CAC was 3.32% higher as the bulls girded their loins. The DAX close above 10,000 means it’s bested what has been a very strong psychological level. In the US, traders were a bit more circumspect with the Dow up 1.06% and the S&P up 1% to 2082 as it closes in on important overhead resistance. That’s pushed the SPI 200 up 38 points.

On forex markets the Aussie is in the mid 76 cent region – roughly where it was yesterday afternoon – on what was a generally firmer US dollar night. Euro is back below 1.13 and USDJPY is back above 109.

On commodities, iron ore continues to rip higher and is back above $60 a tonne. Copper is strong again too at $2.17 a pound and oil traders are tempering their bullishness amid conflicting signs from OPEC about supply and demand and the upcoming meeting.

Here’s the scoreboard (7.33am):

  • Dow: 17,908, +187 (+1.06%)
  • S&P 500: 2,082, +21 (+1.0%)
  • SPI200 Futures (June): 5,075, +38 (0.8%)
  • AUDUSD: 0.7650, -0.0038 (-0.49%)

Now, the Top Stories

1. The ASX could have its third cracking day in a row today. The 200 index had a solid rally yesterday and all indications are that it is set for another strong day today after moves in Europe and the US. That might help Blackmores break higher again after a wild few days trade and it should also help the banks shake off their recent lethargy.

After such a tortured couple of weeks trade where the local market underperformed offshore strength in a material way, the buyers will be emboldened by the offshore price action. They’ll also take a fillip from iron ore and copper’s continued rally, and the global recovery in bank stocks – even though a bunch of US banks had their living wills knocked back by the Fed overnight. SPI 200 futures are up 38 points overnight and on that basis there is a fair chance the physical market on the ASX200 gets close to, or probably hits, 5100 today.

Here’s the SPI200 chart which suggest a rally of another 110 points isn’t out of the question (I like it because it trades when local and offshore markets are open):

SPI 200 Daily (MT4, AxiTrader)

2. Australia’s jobs number today could be a blockbuster – that will be important for the Aussie dollar and ASX. The NAB’s market economics team are hot for a huge print today when the March jobs numbers are released. They are forecasting jobs to print at 40,000 for the month which is much stronger than the consensus estimate of 17,000. The reason, as usual, is statistical quirks at the ABS.

But as rubbery as the jobs data has become, it’s still the number one monthly data release in Australia and traders have no option but to go with whatever the print says. In no small part that’s because other traders do, but it’s also because the data we get is the data we get. Just like China.

So traders will be on high alert at 11.30am. In the meantime, here’s David Scutt’s guide to today’s jobs data.

3. Global coal mining giant Peabody energy has filed for bankruptcy in the US. The globe’s largest private sector coal company filed for chapter 11 bankruptcy protection in the US to reorganise operations and deal with more than $10 billion in debt. “Through today’s action, we will seek an in-court solution to Peabody’s substantial debt burden amid a historically challenged industry backdrop,” CEO Glenn Kellow said in the press release.

The move was not unexpected given the company’s losses last year and other US coal firms have taken a similar route after coal prices collapsed in recent years. But front and centre of any discussion of Peabody’s bankruptcy is its acquisition of the MacArthur Coal mine here in Australia at a cost of $4 billion back in 2011. But the good news for the local industry is that the company also said in its press release that the “Australian platform (is) not part of filing”.

But, as if to underline the woes of the coal industry – at least the thermal part – Bob Bryan reports that based on a number of industry signals, coal as a source of energy may be slowing dying. According to the Energy Information Agency, the US government’s energy tracking department, 2016 will be the first year that coal is not the dominant source of power generation for the US since the beginning of tracking in 1950.

4. Hedge fund manager Jeff Gundlach reckons negative rates are a dumb idea. Jeff Gundlach, chief investment officer of DoubleLine Capital, took a swipe at central bankers who have taken rates negative. “Negative rates are one of the dumbest, most horrible ideas I’ve ever heard of,” he said in a presentation earlier this week. “Europe went negative last year, and bond yields are higher and the euro has strengthened. And euro stocks have been a disaster relative to the US,” he added.

It sounds like Gundlach is talking about the effectiveness of negative rates in regards to the impact on markets. As he notes, it hasn’t worked in Europe and Japan and the yen is probably the most prominent example of the lack of effectiveness of negative rates to achieve central banks’ goals. But as I highlighted earlier this week, Blackrock’s CEO Larry Fink says negative interest rates are lining up savers and the economy for “potentially dangerous financial and economic consequences”.

As a reminder, Fink also said (my emphasis), “this reality has profound implications for economic growth: consumers saving for retirement need to reduce spending if they are going to reach their retirement income goals and retirees with lower incomes will need to cut consumption as well. A monetary policy intended to spark growth, then, in fact, risks reducing consumer spending.” Dumb as a box of hammers.

5. Crude oil production is finally falling – but OPEC cut demand forecasts as well. Yesterday afternoon in Asian trade there was rumour that the Saudis said no deal will be done at this weekend’s joint OPEC/non-OPEC meeting. That knocked the price of WTI in Nymex futures trade down a little more than a per cent into the mid $41 region where it sits this morning.

But regardless of the Saudi rumour, the bulls have taken some succour from news that finally production is falling. Elena Holodny reports that Credit Suisse’s Ed Westlake and Jan Stuart said in a note that global production ex-Saudi Arabia finally started slowing in 2015. “Production clearly is not ‘resilient’ anywhere for long,” they wrote.

But the tension between supply and demand continues with the WSJ reporting that “U.S. oil production finally fell below 9 million barrels a day for the first time since September 2014, according to the latest estimate released by the Energy Department. That long-awaited milestone provided oil market bulls proof that surging production and massive oversupply are finally starting to abate.” While on the other side of the supply and demand argument, OPEC acknowledged the reduced production but also said: “Current negative factors seem to outweigh positive ones and possibly imply downward revisions in oil demand growth, should existing signs persist going forward.”

6. The US dollar was stronger after the Fed’s Beige Book painted a picture of a US economy on track, as the Fed expected. Inflation is picking up and manufacturing is making a comeback, according to the Federal Reserve’s latest Beige Book, Akin Oyedele reports this morning. “Retail prices increased modestly across the majority of the districts while input cost pressures continued to decline in late February and March, driven importantly by low energy prices,” the Fed said.

But other data from the US last night for Producer Prices and Retail Sales both missed expectations to the downside. Sales fell 0.3% month-over-month, with +0.1% expected. The latest producer price index (PPI) showed that prices fell by 0.1% in March compared to the prior month, and fell by 0.1% compared to the prior year. Core PPI fell by 0.1% over the last month, and by 1.0% over the last year. Economists were expecting prices to rise by 0.2% in March compared to the prior month, and by 0.3% over the prior year.

Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Food price (m/m, %), Mar: 0.5 vs. -0.6 prev.
AU: Westpac cons. conf. index, Apr: 95.1 vs.99.1 prev.
EZ: Industrial production (m/m, %), Feb: -0.8 vs. -0.7 exp.
US: Retails sales (adv. m/m, %), Mar: -0.3 vs. 0.1 exp.
CH: Trade balance (CNY, b), Mar: 194.6 vs. 203.7 exp.
CH: Trade balance (US$, b), Mar: 29.86 vs. 34.95 exp.
CA: Bank of Canada rate: 0.5 vs. 0.5 exp.

You can catch me on Twitter.

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

Fortescue Metals (FMG: ASX)

In what is starting to become an established pattern, Fortescue unveiled another strong quarterly production report yesterday. Iron ore production and shipments were largely disruption free. Volumes were steady to slightly stronger compared to the previous quarter.

However the best news was that costs continue to fall while revenues rose. C1 costs which are basically the cash operating costs of mining, were down to an average $US 14.97 per tonne. This was achieved despite the negative impact of a stronger Aussie Dollar. Meanwhile the average sales price rose to $48.30 per ton compared to $US 40.60 in the previous quarter.

The more quarters Fortescue has like this, the more progress it will be able to make on bolstering its balance sheet. This will strengthen its position if iron ore prices do fall again as many are forecasting.

The share price has gained a stellar 24% over the past 4 trading days. With spot iron ore prices up again yesterday, Fortescue looks set to make an attempt at the resistance of its recent peak and the 38.2% Fibonacci retracement level at $3.26. If it does get clearly through this, a rally to the 50% retracement level around $3.83 doesn’t look out of the question.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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