It was a bit of a wild ride on markets last night with the Dow and S&P moving through a 1% range before closing fairly flat. But the Nasdaq was lower with Apple helping drag the tech sector lower.
Miners were under pressure again in offshore trade but the washup is that the SPI 200 futures for June suggest only mild downward pressure on the ASX200 today with an 11 point fall overnight.
On currency markets, the Aussie is under pressure again from a stronger US dollar and yesterday’s big fall in consumer inflation expectations. The pound was pretty solid though, given BoE governor Mark Carney gave another dire warning on Brexit.
Crude is up again even though the US dollar is stronger as traders wonder whether the market is already back in balance. Gold lost 1% though and copper has fallen again.
Here’s the scoreboard (7.31am):
- Dow: 17,720, +9 (+0.05%)
- S&P 500: 2,064, 0 (0%)
- SPI200 Futures (June): 5,358, -11 (-0.2%)
- AUDUSD: 0.7319, -0.0054 (-0.73%)
Now, the Top Stories
1. Here’s why stock market investing is so hard right now. The ASX has been doing really well recently. But in many ways that strong performance has really just been a catch up to where global benchmark indexes have settled post the January/February collapse. Yet whether it is the S&P 500 in the US, the DAX in Germany, or the FTSE in London, the topside momentum has washed away and stocks have been trading in a volatile range near these highs. Take the 173 point, 1%, range the Dow traveled through last night before closing flat as an example of a wild ride going nowhere.
It reflects confusion about the outlook as traders wonder is all the good news priced into stocks or are they still beaten down? The divergence of views was neatly summarised on my Reuters Eikon this morning with two consecutive headlines read “Stockman: Get out of stocks!” and “Stocks heading to new highs: Paulsen”.
It’s the same here at Business Insider. On Tuesday I covered Bob Bryan’s piece on a JP Morgan analyst saying that US companies earnings recession was continuing. Yet this morning Myles Udland has a piece with the headline the earnings recession is over. Myles is covering a contrary, and really interesting research note from Deutsche Bank which says earnings are about to leap higher – much higher than the market expects.
If they are right, Jim Paulsen will be too and stocks will hit new highs. But the debate rages and the price action tells us traders and investors are still very confused.
2. ICYMI – Australian inflation expectations just validated what the RBA did last week. Yesterday the Melbourne Institute released its latest survey of Australian consumer inflationary expectations for May. In what looks like a validation of the RBA’s actions last week to both cut and signal more cuts, expectations dropped 0.4% to 3.2%.
That’s still relatively high and CBA chief economist Michael Blythe said in a note overnight that contrary to the “perception that inflation expectations are collapsing”, they do in fact “remain well anchored”.
That’s true. But only up to a point.
Australian consumers might still be surprised by the recent fall in prices and are still anchored to our communal past experience. But the availability bias is of price falls, specials and things on sale. The big 0.4% dip shows that to be the strong message on inflation Australians are now reviewing.
3. Against this backdrop it’s not really any surprise banks are now joining Warren Hogan in saying rates will go to 1%. Recently here at Business Insider, former ANZ chief economist Warren Hogan wrote that Australia now risks being dragged into the zero interest rate malaise and rates would head to 1%. He’s now been joined in that call by global investment banking behemoth JP Morgan.
In a note yesterday, which accompanied JPM’s call that the Australian dollar would fall to 65 cents, local chief economist Sally Auld was worried about deflation and pricing power. Clearly she is implying that there is something amiss with aggregate demand because she says the “underlying shock is to firms’ pricing behaviour and their ability to pass on price rises”.
She said that uncertainty around the Fed meant the RBA “cant afford to be ‘half hearted'” in getting the real rate of interest down in Australia.
“But, more importantly, the downward revisions to the RBA’s inflation rate forecasts suggest that there is now scope to run the economy harder, and labour market conditions tighter, than might have otherwise been the case,” she said.
4. BUT, inflation has to be coming back surely – crude is up again. I heard a guy on Sky Business yesterday say he’s paying 33% more a gallon for “gas” in the US now than he was a couple of months back. You’ve probably noticed yourself how prices here in Australia have crept up. Certainly not by that amount but I can’t get petrol below $1 a litre on Pennant Hills Rd now when I head down to Sydney.
So I’m interested in news overnight, via Jason Wong – a strategist at BNZ in Wellington – that the International Energy Agency said “global oil stocks would experience a drastic reduction in the second half of the year on the back of strong demand and falling supply by some major producers”.
Likewise, over at ForexLive, Adam Button has picked up on Jeremy Grantham’s crude bullishness. Grantham is bullish on a 5-year time frame because he says about 5 million barrels per day need to be replaced every year as a result of depletion. But Grantham says that won’t happen because of “draconian cutbacks in exploration”.
Oil has fallen a long way. But it has also risen substantially off this year’s lows and, in WTI terms, is $20 a barrel – 79% – higher than this year’s lows. If it continues to rally, or even just stabilises, then the deflationary pulse that washed over the global economy because prices crashed will be unwound. Quite frankly that’s one of the better things that could happen in the months and year ahead and central banks would do a little jig.
5. The governor of the Bank of England has given a dire warning about the impact of Brexit. BoE governor Mark Carney gave a rather clear message overnight that there is a risk of recession if Britain votes to leave the EU.
Will Martin reports Carney said “We would expect a material slowing in growth,” and when pressed about that meant, Carney said he couldn’t rule out recession.
That’s infuriated those who are pushing the exit vote because they believe the bank – and Carney – has intervened in the vote and breached its apolitical positions built up over centuries of operation. But, as Carney said, it’s his and the bank’s job to assess the risks to the economy and communicate them.
The pound didn’t really move but Brexit is the smokey risk for global finance. It may not be a “Lehman” moment exactly but if Britain does vote to leave the EU, no one really knows what that will do or mean. Even, it must be said, Mark Carney and the BoE.
6. The disruptor has matured – Apple stock made another new two-year low. Apple’s share price is now back where it was in June 2014. As Myles Udland wrote this morning, it’s no longer the most valuable company in the world. It’s latest woes – which saw the price fall more than $2 last night – were sparked by a Nikkei report that said Taiwan Semiconductor Manufacturing Company, Apple’s main processor chip supplier, is looking at a terrible second half of 2016.
Traders implied that means Apple is having a bad period as well. Perhaps it’s a long bow. But as I highlighted when Apple’s results were released lately, the behavioural change in investors and analysts to Apple is interesting. As love is lost, so bad news is grabbed and good news ignored.
And if you are wondering who’s the biggest firm on the planet by market cap, Myles says it’s Google. “Apple was worth about $492 billion on Thursday while Google was worth closer to $493 billion,” he wrote.
Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Manufacturing PMI, Apr: 56.5 vs. 54.7 prev.
AU: Consumer inflation expect., May: 3.2% vs 3.6% prev.
EC: Industrial production (m/m%), Mar: -0.8 vs. 0.0 exp.
UK: BoE Bank Rate (%), May: 0.5% vs. 0.5% exp.
US: Import price index (m/m%), Apr: 0.3 vs. 0.6 exp.
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And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Investors will take some comfort from the fact that Myer appears to be spending the additional $221m it raised from investors last year reasonably well.
Myer’s quarterly sales result was well received yesterday. The stock finished up 7%.
A key feature of the result was pleasing progress on lifting productivity. Sales per square metre of floor space were up 5.1%. Myer also maintained its full year profit guidance of $66-72m. It was able to do this despite the negative impact on clothing sales of the long, warm autumn and concerns about the potential impact of the election on consumer confidence.
The share price stopped at minor chart resistance around $1.23 yesterday. However, it would not be hard to imagine a rally to more significant resistance around $1.32. That would complete a neat AB=CD pattern. It would also take the price back to the zone of resistance around an established trend channel.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC