With US stocks closed last night for the Martin Luther King holiday, traders in Europe were more circumspect than has become usual in 2016.
The lack of data releases and the absence of US trade meant oil was the key focus. So after it weakened from highs, European stocks ended down between 0.25% and 0.5% on the big bourses. US stock futures were open but have closed flat.
All in all that’s actually a solid result after Asian markets came back from the early brink when oil crashed, commodity currencies were pressured and stocks made their lows for the day.
But that relative calm overnight isn’t quite reflected in the performance of ASX futures last night. With a fall of 0.7%, the March SPI 200 contract is pointing to another weak open. But that is at best an indication given the data calendar contains some important Chinese economic releases midway through the session which will set the tone for the close.
The slight reversal from the high points of sentiment yesterday has knocked the Australian dollar back below the 69 cent level it briefly regained when it hit a high of 0.6927. It sits at 0.6856 this morning.
Whichever way the Chinese data goes today, markets will likely follow.
Here’s the scoreboard (8am):
- Dow: 15,988, -391 (-2.39%) as at Friday Jan 14 close
- S&P 500: 1,880, -42 (-2.16%) as at Friday Jan 14 close
- SPI200 Futures (March): 4,783, -34 (-0.7%)
- AUDUSD: 0.6858, -0.0008 (-0.12%)
1. The Chinese data dump can make or break markets today. China has been the epicentre for 2016’s market ructions, making Chinese data more important than ever. So today, Super Tuesday as the NAB called it in their morning note, is a big day for traders with the release of Q4 GDP, retail sales for December, industrial production and urban investment at 1pm AEDT.
Most of the focus will be on the GDP release which is expected to show a small fall on the third quarter’s year-on-year growth rate with a print of 6.8%. Quarterly growth is expected to print 1.7% while retail sales for December are expected to print 11.3% year-on-year.
David Scutt has a preview of the GDP data. He’ll be back to cover all the data when it is released later.
2. Global growth is no longer sufficient to service global debt. These have to be the 10 scariest words I’ve read about the global economy in ages. But that’s the takeaway Ben Moshinsky from BI’s UK office got when he attended Societe Generale uber-bear Albert Edwards’ presentation to his bank’s clients.
You might want an adult beverage while you read Moshinsky’s piece.
And, as if on cue, the FT reports this morning that Citigroup, Wells Fargo and JPMorgan have disclosed sharp rises in costs for bad energy loans.
3. It could have been worse for Australian stocks yesterday. Asia had a better day yesterday than many feared. Early acute weakness on forex, commodity and stock markets moderated across the day. In the end, that left the ASX 200 down just 0.7%. A much better performance than the SPI 200 futures suggested at the weekend close.
But even with this better performance, stocks are still under pressure having broken the uptrend from the start of the rally in 2011 on both the physical and SPI 200 futures market. Yesterday futures trades were so relieved things weren’t worse at the close, they drove prices all the way back to retest the break of the trend. That test failed and prices for the March SPI 200 are down 35 points, 0.7%, to 4,782. Traders will be watching this trendline, and the Chinese data today, very closely.
4. Iran back in the oil market after nuclear deal comes into force. Oil’s collapse yesterday morning looked very much like a Monday morning stop run. And while it was in no small part a hangover from weak prices last week, the reality that Iran is back and producing after the fall in their nuclear deal came into effect and the head of the national oil company gave the order to ramp production 500,000 barrels a day higher.
The FT reports Rokneddin Javadi, head of Iran National Oil company, said: “If Iran does not increase its oil production, neighbouring countries may increase their production by the next six months or one year and take Iran’s share.” And he’s not bothered by the weak prices, saying they would stay below $30 a barrel unless there is “a logical consensus to manage the oil market”.
With Iran and the Saudis facing off across numerous Middle Eastern conflicts, traders don’t think there is a big chance of that.
Oh, and Will Martin from BI UK reports Oil output fell in December, but don’t expect prices to rise any time soon.
5. China just put the screws on offshore traders trying to weaken the yuan. Last week China drove rates in the offshore yuan market toward 70%, putting the squeeze on those traders driving to drive the Chinese currency to weaker levels. But as soon as they let rates return to normal the shorts were back and the yuan came under pressure again.
So Chinese authorities have come up with a cunning plan. Chinese banks now have to hold reserves against offshore deposits which is aimed at driving liquidity out of the market and making it harder and more expensive to try to drive the yuan to weaker levels. David Scutt has ANZ’s explainer of how it will all work here.
6. Are we about to see another round of Big Bank rate rises in Australia? The tightening in global liquidity and the pessimism in global credit markets is driving the cost of funds higher for Australia’s banking sector. That’s the news from the AFR this morning which quotes Brian Johnson, CLSA’s excellent banking analyst, saying: “If you look at wholesale funding costs, they are getting worse…Absolutely every single dynamic is deteriorating. We’d have to say that more than likely when corporates basically go to get their next round of refinance it will be a higher rate.”
That puts pressure on bank margins and that means banks might be thinking again about out-of-cycle rate hikes. Alternatively, it also means the RBA might be closer to rate cut than many think.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Woolworths closed up 4.4% yesterday after being up as much as 7.9% at one stage. The market was valuing the Masters business at $0 on Woolworths’ balance sheet. Shutting it down will see some minor earnings up grades for the next couple of years and removes the risk of ongoing losses beyond that. It’s also generally expected that Woolies will be able to recover some value from selling the Masters warehouses and leases.
The next big event for shareholders will be the half year results due in late February. This will provide some insight into how profit margins are holding up as the supermarket wars intensify.
Technically focussed shareholders will be eyeing the potential for WOW to complete a double bottom pattern. The double bottom resistance at $25.19 is the next major chart hurdle. The 200 day moving average at around $26.30 looms above that. It’s been consistent resistance for every bout of false optimism during the Woolworths descent from its $38.92 peak. If that can be cleared, it would open the way up for a shot at resistance between $28 and the 38.2% retracement level at $28.70.
Of course, from a chart point of view, a move back below the double bottom at $22.40 might spell trouble.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC