6 things Australian traders will be talking about this morning

Spencer Platt – GettyImages

The ASX could be under a little pressure in trade today after stocks in the US lost around 1% Friday night. That was before the weaker than expected Chinese data and new allegations by ASIC against Westpac in its BBSW case.

That combination means the loss of 0.3% the SPI 200 has suggested could be exceeded in trade today.

On forex markets, the US dollar rose a little against the euro, pound and of course, the Aussie into week’s end. This morning the Aussie was down initially as a result of the Chinese data and traders will be watching how it moves across the day.

On commodity markets, crude’s rally feels like it’s fading, copper is still sitting right on the range bottom, gold is becalmed and iron ore is sitting on a 6-week low.

Here’s the scoreboard (7.50am):

  • Dow: 17,535, -185 (-1.05%)
  • S&P 500: 2,047, -18 (-0.85%)
  • SPI200 Futures (June): 5,316, -15 (-0.3%)
  • AUDUSD: 0.7354, 0.0000 (0%)

Now, the Top Stories

1. The Australian dollar has broken a key technical level this morning – how low can it go? The perfect storm for the Australian dollar is building as the US dollar strengthens, the market prices more RBA cuts, and Chinese data slips again. Already the Aussie is down more than 7% from this month’s high and this morning it has dropped below the 200-day moving average at 0.7258.

That’s the level at which some traders believe a market switches from bull to bear, or bear to bull, depending on which direction it is coming at the average from. For the Aussie, it’s falling down and through which means selling pressure could be about to pick up. Already data from the CFTC in the US on Friday night suggested more liquidation last week. But as Marc Chandler from Brown Brothers Harriman pointed out in his blog, “at 82.8k contract, the gross long position is the largest after the euro (101.3k) and yen (88.9k)”. Speculative liquidation is just where the next wave of selling might end up coming from.

AUDUSD Daily Prices (MT$, AxiTrader)

2. ASIC has some new allegations about the conduct of Westpac dealers. Phone calls in dealing rooms all over the world are taped. That’s to protect banks and clients from misunderstandings about transactions, deals, etc that they enter into. Equally though, it’s also a record of every conversation that occurs in the dealing room and it seems ASIC has trolled through the chatter in the Westpac dealing room between some of the dealers it is investigating as part of its allegations against Westpac of “unconscionable conduct and market manipulation” of Australia’s benchmark bank bill swap reference rate (BBSW).

I’ve got more here but the highlight appears to be one dealer saying he’s “going to f— them as well that’s why I don’t want to get… I’m going to f— the rate set right on the 10th…”

Colourful stuff.

3.Fears about US consumers might be overblown – that’s a massive risk for markets. Last week I hypothesised that the troubles at US retailers, and their earnings, may not necessarily reflect what is actually going on in households. My point was that the old world bricks and mortar retailers are being disrupted and as such, the consumption and retail sales part of the economy may be stronger than it appeared based on the read of these big listed retailers.

Friday night’s 1.3% print for April sales was the strongest increase in more than a year. Add in a dose of confidence with the Uni of Michigan consumer confidence index surging to 95.8 from 89.8 and you get a sense that for all its headwinds, the US economy might yet give room for the Fed to hike again this year.

Signalling that intention is something the Fed is going to need to do again at its June meeting and Fed governors and presidents talking this week may take the opportunity to start that conversation.

That’s a risk for markets – stocks in particular – which look like they are losing upside momentum again. The US dollar is similarly getting a little of its mojo back.

4. Chinese data was weaker again over the weekend. The ASX could come under a little more pressure than the 15 points the SPI 200 futures suggest today. Not just because Westpac might drag the banks a little lower but because Chinese data has been slipping again lately. David Scutt summed up the situation perfectly on Saturday with his coverage of the weaker than expected Chinese data.

“Maintaining the pattern of those releases before it, Chinese industrial output, retail sales and fixed asset investment — known in markets as China’s ‘data dump’ — have missed across the board in April,” Scutty wrote. Industrial production printed 6% year on year, retail sales were up 10.1% and urban investment was 10.5% higher. These are phenomenal numbers by developed market standards but as Soc Gen’s Michala Marcussen suggested in a note this morning, “the growth spurt observed in Q1 was unlikely to prove sustainable and April releases confirmed this with softer data across the board, except for housing.”

Better than expected Chinese data was as much a part of the market recovery as rising oil this year. So this could be a significant headwind for markets and stocks. Something to watch.

5. The confusing picture of US recession risks. The FT has an interesting story this morning noting that the flattening of the US bond curve – that’s where longer rates converge toward short rates – which has closed at is tightest spread since December 2007, is signaling a recession in the US.

The FT says that this “signals investor concerns about the longer-term outlook for the economy”. I’d argue though that this measure has been overcome by QE around the world and the global savings glut as a good indicator of where the economy is actually headed.

The lack of clarity of what the yield curve is actually saying in the post-GFC global environment is one of the reasons we are seeing the growing number of official “nowcasts” of GDP. To that end, it’s worth pointing out that after the US retail sales report Friday, the Atlanta Fed’s latest GDPNow reading has second quarter growth tracking at 2.8%.

It is a coincident indicator it moves around as the data is released. But it suggests at present the US economy is looking reasonably okay.

6. And of course it’s a huge week on local markets. RBA Minutes tomorrow, employment data on Thursday – it’s a big week for Australian markets as these two releases are huge inputs into the market’s view of the path of RBA rate cuts, and by extension, the Aussie dollar’s fall.

Here’s my diary of the week ahead from an Australian perspective. And for those who want to be a little bit more intimate with what’s going on in the US, here’s Akin Oyedele’s excellent take on the week ahead from a US perspective.

Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Real retail sales, q/q%, Q1: 0.8 vs. 1.0 exp.
NZ: Non-res. bond holdings, %, Apr: 66.5 vs. 67.4 prev.
GE: CPI, m/m%, Apr F: -0.4 vs. -0.4 exp.
EZ: GDP, q/q%, Q1 P: 0.5 vs. 0.6 exp.
US: Retail sales advance, m/m%, Apr: 1.3 vs. 0.8 exp.
US: U. of Mich. Sentiment, May P: 95.8 vs. 89.5 exp.
CH: Industrial production, y/y%, Apr: 6.0 vs. 6.5 exp.
CH: Retail sales, y/y%, Apr: 10.1 vs. 10.6 exp.
CH: Fixed assets, ytd, y/y%, Apr: 10.5 vs. 11.0 exp.

You can catch me on Twitter.

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

Harvey Norman

Harvey Norman is positioned to enjoy another year end boost from the “tradies’ tax”, depreciation concessions. While the boost may not be as significant as last year when the arrangements were first introduced, it’s not hard to imagine that any small business that could use new phones or laptops will be making sure they get them before 30 June.

At the same time, CSR’s solid outlook statement last week provides insight into the fact that residential building boom has at least 6-12 months to play out and is likely to support furniture sales for a while yet.

At around 16.1 times forward earnings, Harvey Norman is trading a little below its average valuation since the beginning of last year. Its chart is also in a pennant formation after enjoying a strong, “flagpole” rally. A break through the top of this pennant in the next couple of days would give the share price a decent crack at a run up to the resistance level around $5.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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