6 things Australian traders will be talking about this morning

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It’s the middle of the month and Santa’s sleigh is due to come thundering down Wall Street and propel stocks higher into year’s end.

That seems to be the tack traders were taking overnight as they bought crude oil 5% from the new post-GFC lows and as they bought US stocks off their lows and closed on the highs of the day. The S&P trough to peak rally was 30 points or 1.5%.

That’s driven the SPI200 futures to be down just 1 point and up around 35 points off the lows. So, as I highlight below, it could be a good day for the ASX. Indeed it could be quite a few good days while important support holds.

Besides the big reversal in oil, which also suggests a low might be in place, bonds in the US sold off heavily with the 10-years rising to 2.22% from Friday’s close at 2.14%. The Aussie dollar also reversed yesterday’s weakness which saw it trade down into the mid 0.7150 region as overall risk sentiment seemed to improve across markets overnight.

We still have the Fed decision two full Australian trading days away, but it seems that there is some reversal of positions in the run up.

So, the scoreboard (8.18am):

  • Dow: 17,368, +103.29 (+0.6%%)
  • S&P 500: 2,22.03, +9.62 (+0.48%%)
  • SPI200 Futures: 4,920, -1 (0.0%)
  • AUDUSD: 0.7233 +0.0047 (+0.65%)

And now, the top stories:

1. MYEFO madness. It’s Federal treasurer Scott Morrison’s big day today with the release of the government’s mid-year economic and fiscal review. In many ways it’s also the government’s first real test. Will they abandon the Panglossian budget forecasts that have so defined Australia’s fiscal management for the past 6 years? Or, will we get a clean break, a deck-clearing which sets the scene for real reform?

We’ll know at 1pm when the document is released in Perth. But the location itself is a hint to how bad some of the numbers might be. That’s especially around the iron ore forecasts, David Scutt reckons. But at least the price rose last night.

2. Bargain hunting on the ASX. The ASX 200 had its second lowest close since 2013 yesterday at 4,928. That was only shaded by the September low. But something a little strange happened yesterday on the physical market which I noted in my AxiTrader Asia Market Wrap yesterday afternoon. That something strange was that while “BHP and Rio fell 3.49% and 2.04% respectively…the big winners were names like Regis Resources, Evolution Mining, Beach Energy, Newcrest Mining, Drill Search…the smaller miners. That screams bargain hunting.”

That’s important given support was close on both the physical and futures markets. Here’s the chart from yesterday afternoon:

SPI200 Futures (LHS, MT4 Axitrader) and ASX200 Physical (Reuters Eikon)

Traders will note that the SPI200 futures last night found support at the blue line on the left-hand chart, right where support was supposed to be.

Of course, a break could get ugly, but it seems like support looks solid for now. Could we have an up day on the ASX200??? Chris Weston from IG thinks so. He’s tweeted this morning that: “As long as SPI holds 4881 I’m long.”

3. Junk bond selloff. Traders are watching the events in global credit markets closely. There is much fear of an emerging market debt crisis in 2016 and much talk about what is going on in the US junk bond market right here and now. Last night, Goldman Sachs put out a note highlighting that “2015 could become the worst non-recession year for HY”. But usually at a time of distress, buyers step in and start to pick off the good companies that are being sold with everything else. That eventually turns the whole market. But it’s not happening this time and this junk bond veteran explains why.

4. Commodity market bounce? I’m not normally a contrarian but any trader with more than 5 minutes experience will know that when one side of the boat gets crowded it might be time to exit that trade and go the other way. Last night oil tanked again, hitting a low of $34.53 before rallying to close at $36.24. That’s a 5% rally off the low. That in itself is a good sign for Oil.

But what really has the contrarian in me excited is this report by BI US’s Julia la Roche that “There has been a ‘sea-change’ in commodities, and hedge funds have lost $40 billion.” Key for me is this, “assets under management in the top ten commodities funds have fallen by 80% since 2008.” Who’s left to sell?

5. China let the yuan fall to a 4-year low yesterday. China’s new basket regime didn’t stop the yuan from printing a new 4 year low against the US dollar yesterday. But even though it finished at 6.4588 there is some analyst chatter that the PBOC doesn’t want the official rate USDCNY to head much through 6.45 and certainly they don’t want the offshore rate above the 6.55 level it’s now trading at.

But when you get news that Chinese officials admit to faking economic data, what can you expect?

6. Bank layoffs. Plenty of people I speak to in trading rooms these days, guys I’ve known for years, keep telling me that it’s different to the way it used to be. It’s not fun anymore and that they are wondering when the next layoffs will be. That fear, along with regulations, is one of the reasons traders don’t step up to the plate and buy when markets are in a funk anymore. The type of management support for such positions, especially if they wrong, isn’t there anymore.

So there will be plenty of chatter today around a story BI UK’s Oscar Williams-Grut put together overnight. Oscar says Banking’s ‘Uber moment’ is already happening — 100,000 bankers lost their jobs in 2015. Yuk, he’s talking about the US and the UK, but banking is a global business, so traders in Australia will take notice. One bright spot though for the Mandarin speakers out there, Bloomberg reported that “China’s Headhunters Are Desperately Seeking Credit Analysts“.

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

CBA

If we do get the much touted Santa Rally, it might struggle to get the ASX 200 much past where we were a few weeks ago given how much ground we’ve lost recently. However, we are now arriving at the pointy end in terms of potential timing for a Santa rally launch. This makes it interesting to see some major stocks, like CBA arriving at potential support levels.

CBA stopped at the 38.2% retracement level yesterday which looks like the top end of a potential support zone. Trend channel support is also close by around $76.80. A bounce off this level or close to it would also represent a bit of a flick through the 50 day moving average which is how the last 2 corrective declines have ended.

Ric Spooner, chief market analyst, CMC Markets

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