6 things Australian traders will be talking about this morning

Photo by Bryn Lennon/Getty Images

A night of risk aversion saw stocks fall across the globe and US markets give back a little more than the previous session’s gains. Commodities, especially oil, were under pressure and the US dollar rallied.

It’s not really about the Fed and a possible tightening next week or this year. It’s about a turn in the cycle as bond rates climb higher and investors reevaluate the efficacy – and persistence – of unconventional policy.

There is much to be played out.

But for the moment the Aussie dollar has fallen to 0.7460 and the SPI 200 suggests the market will open to the downside again after yesterday’s weakness.

All eyes on Westpac’s consumer sentiment data to be released today.

Here’s the scoreboard (7.44am):

  • Dow: 18066 -258 (-1.41%)
  • S&P 500: 2159 -32 (-1.48%)
  • SPI 200 Futures (September): 5,183 -11 (-0.2%)
  • AUDUSD: 0.7460 -0.0099 (-1.32%)

The top stories

1. Australian stocks are still under pressure. The SPI 200 is down 11 points overnight. That’s not too bad. But after the heavy selling, and the awful reversal off the mid-5270 region yesterday, the question investors and traders will be asking is when will the buyers return? It’s an axiom in trading rooms all around the world that no one wants to catch a falling knife. So today might not be the day for a recovery.

That’s particularly so because from an investor behaviour point of view, the lack of ability of the local stock market to regain 5600, then 5500, then 5400 and now 5300 fairly screams a deterioration of the underlying sentiment toward valuation on the Australian stock market.

And now that the SPI 200 has joined the ASX 200 in breaking the uptrend from 2016’s lows – the outlook has darkened it seems until the US markets turn around.

SPI 200 (MT4, AxiTrader)

2. The Commonwealth Bank closed at a 3-year low as buyers deserted it on the 25th anniversary of its listing. Selling Australian banks has in some circles been called the “widow maker trade” over the past year or so. But it seems the doomsayers and hedge funds who hold a jaundiced view of Australian banks will enjoy their time in the sun after the CBA closed at a 3-year low and broke an important technical level yesterday.

I’ve got more here.

3. The Australian dollar got hammered last night as risk went off and commodities were sold. Scutty will have more later but buyers abandoned a recent practice of accumulating long Aussie positions around 75 cents as the CRB collapsed 1.3% overnight, oil was crushed 3% and the general tone of risk aversion gripped traders.

The high level of cash (see item below) tells you fear is the most available emotion for investors even though stocks have been recently near all-time highs in the US. That’s never a good environment for the Aussie and when you throw in compressing bond spreads, falling commodities and a stronger US dollar, it’s easy to see why the AUDUSD is back at 0.7450.

After the Aussie failed to get a lift from reasonably solid Chinese data yesterday, the next big question is how far will it fall before the buyers come back?

4. Bonds are selling off and it’s hurting stocks – global investors’ cash is at a 15-year high. US, German, and UK 10-year bond rates all rose overnight. The 30-year auction in the US wasn’t well supported. And the Bank of England was swamped with three times as many bonds being offered in its QE buying program as it needed.

It’s a continuation of this reversal in bonds which shows the moves in markets are about more than just the Fed and interest rates. Overnight, the release of a Bank of America survey of investors showed money managers raising cash holdings to 5.5%, their highest level in nearly 15 years, with a record number of respondents saying that stocks and bonds were “over-valued”.

Akin Oyedele reports Michael Hartnett, BAML’s chief investment strategist, said: “Investors see an unambiguous vulnerability to ‘bond shock’ among risk assets, with the most crowded negative interest trades and EM equities susceptible should the Fed and especially the BoJ fail to reduce bond volatility in September.”

Jonathan Garber discusses why bond yields could go even higher from here. Tin-foil hat time folks.

5. Oil is on the brink of another big crash. On Monday night OPEC said that its competitors, specifically US shale oil producers, are going to pump more oil into the end of this year and then again in 2017. Last night the IEA took the other side of that supply demand discussion and said the outlook for demand has deteriorated. So fears of the supply glut continuing are front and centre again. And some now fear crude oil prices are on the brink of another big crash.

And as if to underlie the point that an OPEC deal to cap production in Algiers at the end of the month may not achieve anything, we’ve got news that the Saudis have taken back the mantle from the US as the world’s biggest oil producer.

6. Median household incomes in the US just surged for the first time since 2007. I like this story for three reasons. First, it’s great for US households. Second, it underlies that the US economy can continue to do well and be powered by jobs and consumption. And third, it reminds me what an amazing economy we live in here in Australia. Sure, wages growth is much slower than we’re used to, but wow compared to the US we are in clover.

Elena Holodny has more here.

I’m Greg McKenna and you can catch me on Twitter or at AxiTrader where I am the Chief Market Strategist.

Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Food price index (m/m%), Aug: 1.3 vs. -0.2 prev.
AU: NAB business conditions, Aug: 7 vs. 8 prev.
CH: Industrial production (y/y%), Aug: 6.3 vs. 6.2 exp.
CH: Retail sales (y/y%), Aug: 10.6 vs. 10.2 exp.
CH: Fixed assets investment (y/y%), Aug: 8.1 vs. 7.9 exp.
UK: CPI (m/m%), Aug: 0.3 vs. 0.4 exp.
GE: ZEW survey expectations, Sep: 0.5 vs. 2.5 exp.
US: NFIB small business optim., Aug: 94.4 vs. 94.8 exp.

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

Domino’s Pizza (DMP: ASX)

It’s been a long time since this stock has broken below any meaningful chart support. However, it’s reached an interesting stage now.

Domino’s closed yesterday at $72, down from a peak of $80.69 about a month ago. It’s Forward Price: Earnings multiple has also been steadily falling. This peaked at around 69 times earnings in May but is now down to (a still stellar) 52 times.
All this sees, the share price testing the support of a steep trend channel. If we are going to see a deeper stock market correction in advance of a Fed rate hike, market darling stocks like this might be a bit vulnerable.

If Domino’s does happen to break support, those waiting patiently to buy into this great growth story might be rewarded with an opportunity. Possibilities might include the 50% retracement and 200 day moving average around $64.50 or the 61.8% retracement and previous highs around $61. An initial bounce off the 38.2% retracement at $68.40 might also be something to look out for.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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