6 things Australian traders will be talking about this morning

Photo by Pablo Blazquez Dominguez/Getty Images

No matter how stupid you or I think the Trump rally might be right now, the bulls have it. Last night it was the turn of the S&P 500 and the Nasdaq to rip higher with the S&P 500 now just 10 points below its all-time high after a 14-point rally overnight.

In no small part that rally was encouraged by the 6% leap in oil prices as traders flipped back into “OPEC will get a deal done” mode after news broke that the Saudi oil minister is meeting with his Qatari and Russian counterpart later this week. Gold is higher as well up more than $7 dollars; copper and iron ore fell.

On forex markets the US dollar sits atop 100 in index terms and has crushed the yen to 108.80 but looks like it might be stalling. The Australian dollar is still hanging tough in the mid 75 cent region.

The wash-up is that futures traders on the ASX have the SPI up a stonking 24 points guesstimating a half a per cent surge when the market opens at 10am. Watch out though, the miners got hammered in London overnight and Ric Spooner sees a retraceement looming for BHP – you can see his chart at the end of this post.

Here’s the scoreboard:

  • Dow: 18905 +36 (+0.2%)
  • S&P 500: 2180 +16 (0.75%)
  • SPI 200 Futures (December): 5,348 +24 (+0.5%)
  • AUDUSD: 0.7557 +0.0015 (+0.2%)

The top stories

1. It’s time for the US dollar bulls to put up or shut up. I offer you this chart of the US dollar – in DXY index terms – for the past 5 years. Can it break or will it hold and reverse? The trader in me says trust the range top. But time and Trump policies will tell.

For the moment though a lot is already priced in. Here’s the chart from my Reuters Eikon terminal:

US dollar index – DXY – daily (Reuters Eikon)

If the US dollar turns around, hold on to your hats. The Aussie dollar will roar in the current positive reflationary environment.

2. The RBA is still the best central bank in the world and governor Lowe is a comfortable inheritor of the mantle. Yeah, yeah – I know. The doomsayers will say the RBA just built the economy on housing and the name callers will be sending me pictures of Pollyanna. Yet actions and records speak louder than words and the RBA has a great track record.

But in last night’s speech to the CEDA annual dinner, RBA governor Lowe gave that credit to the economy, to Australians, and to the flexibility both have shown in the face of multiple headwinds over the years. To a certain extent in giving his three reasons for resilience in the economy – financials system, government finances, and household balance sheet – he made the doomsayers’ case for them. But he also talked about the still available buffers for the economy in these sectors as well.

And as the minutes to this month’s RBA board meeting reflected yesterday, the outlook for the economy is pretty good right now. Although the RBA, and everyone – is watching the jobs market.

3. Stocks just gave up an important advantage they have held over bonds. Bonds consolidated some of their recent sell-off last night even though the really strong retail sales data puts a strong lock on a December Fed hike. I guess that is because the bond move is about so much more than the Fed. It’s about reflation, economic growth and a turn in the cycle of lower bond rates.

But as I’ve been writing often, that has an impact on stocks. Bob Bryan reports, in a structural sense, stocks have given up an important advantage they have held over bonds.

But Kelly Bogdanov, a portfolio analyst at RBC Wealth Management, reckons dividend paying stocks might have a few fits and starts but will be okay in the long run. That’s good news for stocks in the US and here in Australia.

4. Ray Dalio says Donald Trump’s election is paradigm shifting in so many ways. Traders, investors, and commentators are all trying to get their heads around what the election of Donald Trump means for the US and global economy. Ray Dalio, the founder of the world’s largest hedge fund Bridgewater, has some firm views about what he thinks it all means.

Rachel Levy reports that Dalio believes Trump’s election marks a paradigm shifting turning point. “There is a good chance that we are at one of those major reversals that last a decade,” Dalio wrote in a Tuesday post on LinkedIn.

He sees similarities with Reagonomics, a move away from globalisation, and the end to the 35-year secular bond market rally. He’s also thinking fears about Trumponomics and the team running it might be overblown. I couldn’t agree more and it might be time to get that portion of my super in cash back into stocks in Australia.

5. But Nobel economic laureate Paul Krugman is still beating himself up about Trump’s election and says he will turn the US into a Russia-like “kleptocracy”. Bob Bryan has the full take on Krugman here.

But on Krugman’s theme I want to quickly add, watch what happens to Chris Christie in the Trump transition team. Jared Kushner, Donald Trump’s son-in-law and Ivanka’s husband, was a key player in the election and there are reports he is gunning for Chris Christie and his supporters. The reason? Christie was the prosecutor who chased Kushner’s father into jail. The behaviouralist in me says we’ll know a lot about the Trump presidency when we know how this plays out.

6. Okay – I know this is huge on the site but I have to throw it in here too. Millennials – get off your damn smartphones and get back to work. We are not in Larry Summers’ secular stagnation, says Jason Karp, founder of Tourbillion Capital in his latest note to clients. Rather, what the global economy needs is Millennials to put their damn phones down and actually do some work. Here, here, cry Statler and Waldorf. Boo, cry the youngsters – “you old…” they might say.

You really have to read this. But it’s not some old guy berating youngsters for their smashed avocado, it’s a fellow trying to understand the impact of new technology on productivity and thus the wealth of nations. For mine I think I have to agree with his broader point.

Have a read and see if you do too.

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

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

BHP set for a retracement

Copper and iron ore prices look to be settling down a bit after what looks like a bit of a “blowout” rally in recent weeks. Given the size of the gains, the retracements could be quite large as traders settle down to wait on evidence of just what the Trump Administrations infrastructure plans will actually amount to.

New York trading indicates that BHP will open weaker this morning. It’s looking a good chance of rejecting the bottom end of a chart resistance zone consisting of the January 2015 low and the 61.8% Fibonacci retracement of the major decline from $32.

Assuming a pullback is getting underway; a relatively shallow retracement could find the 38.2% retracement around $23. A more meaningful correction could see BHP back pull back to the last major peak and 61.8% retracement around $21.60/$21.80.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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