6 things Australian traders will be talking about this morning

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The relief rally continued in Asia yesterday and Europe overnight.

US markets were out in a physical sense but their futures joined in for the ride and the S&P March contract is up 1.42%

That sets up a good day for the ASX today after the March SPI 200 contract finished up half a per cent, 25 points, at 4,810. Of course, the action in Asia will be important – Shanghai only fell half a per cent yesterday while Tokyo ripped more than 1000 points higher as the Nikkei closed at 16,022. But another good day beckons.

On forex and commodity markets, the recovery in USDJPY continues, euro was hit hard by ECB president Mario Draghi but the Aussie dollar is standing tall at 0.7134, up 0.5% against the somewhat stronger US dollar. Nymex crude is trying to break and hold back above $30 but can’t just yet, and gold is lower again.

Here’s the scoreboard (8.05am):

  • Dow: 15,914, -100 (-0.6%) – as at last trade Friday
  • S&P 500: 1,851, -1 (-0.1%) – as at last trade Friday
  • SPI200 Futures (March): 4,812, +27 (+0.6%)
  • AUDUSD: 0.7134, +0.0034 (+0.52%)

And the top stories:

1. Welcome to the market reversal we had to have. Like most things, stocks, bonds, commodities, currencies, gold and other markets don’t all go one way forever. So traders are likely to find themselves in a much better mood this morning after the Nikkei gained more than 1000 points, 7.16%, yesterday, and stocks in the UK and Europe popped between 2% and 3% higher. SPI futures suggest further gains for the ASX today as well. On other markets, the USDJPY has reversed about 40% of its big selloff, gold has lost a little of its lustre and is off more than $50 an ounce from last week’s highs, while crude oil is higher but still below $30.

It’s the reversal of market’s acute weakness in 2016 we had to have and it happened even though we had terrible Chinese trade data and abysmal Japanese GDP releases yesterday.

But the big question for traders is, can this last? For others the question is how long will it last before the selling begins again? The truth is no one knows just yet. But after such acute weakness in such a short time frame, this is just the rally stock markets need to have. 2016’s volatility is unlikely to be over yet.

2. If you are feeling a bit 2008 this year, that might be a good thing. Investment bank Jefferies has had a look at a number of market indicators that were returning to levels not seen since the 2008 financial crisis, Ben Moshinsky from BI UK reports.

That means much bad news is already baked into the cake. Maybe the rally and market reversal we have to have might find its legs and kick on more than many expect. Moshinsky has the full story here.

3. The currency war continues – it’s the ECB’s turn now. The euro fell around 1% last night after ECB boss Mario Draghi effectively promised the European Parliament that he and his board will cut rates in March.

Here’s his almost cast iron guarantee (our emphasis):

The focus of our deliberations will be twofold. First, we will examine the strength of the pass-through of low imported inflation to domestic wage and price formation and to inflation expectations. This will depend on the size and the persistence of the fall in oil and commodity prices and the incidence of second-round effects on domestic wages and prices. Second, in the light of the recent financial turmoil, we will analyse the state of transmission of our monetary impulses by the financial system and in particular by banks. If either of these two factors entail downward risks to price stability, we will not hesitate to act.

Perhaps Draghi still thinks lower rates will help Europe. More likely though, he knows his promises might weaken the euro.

4. China is battling the forex speculators and hedge funds who think the yuan is going to weaken. I highlighted here yesterday comments from PBOC governor saying we can all relax a little about the prospects of a yuan devaluation. He made that point, along with some more aggressively targeted warnings for “speculators” in an interview with Caixin over the weekend.

Yesterday, words become action with the yuan having one of its best days in years as the PBOC dropped the fix by around 0.9% and then the market took the yuan to its lowest prices, and close yesterday at 6.4963. That was despite the terrible trade data.

China and its central bank, the PBOC, are not the Bank of England in the early 1990s. This is going to be an interesting battle played out over many months. The yuan will likely weaken in the end. Just probably when China is ready.

5. Russia IS meeting with OPEC. 12% in one day is a huge move for any asset. So last Friday’s remarkable bounce in crude oil was noteworthy. But it seems traders are yet to be convinced the deal will actually get done. Remember, last week the head of Russia’s oil giant Rosneft said he would defend his traditional markets.

The FT reports an unnamed person has confirmed that “Saudi Arabia’s powerful oil minister Ali al-Naimi will meet with his Russian, Qatari and Venezuelan counterparts in Doha on Tuesday.” Low prices might be pushing them toward action and if oil finds bottom and starts to rally that can be a game changer for inflation and central bank policy down the line. But the big question is getting buy in. Especially from a newly sanctioned free Iran.

6. Australia’s population hits 24 million today – I bet traders are wondering what that means for growth. So the ABS announced yesterday that the Australian population hits 24 million today. Sarah Kimmorley reported yesterday that the ABS said that last million people had been added in the record time of 2 years 9 months and 2 days – the first time that a million people has been added to Australia’s population in less than 3 years.

So are you thinking what I’m thinking? The RBA, Treasury and others have downgraded Australia’s potential growth rate because the population growth will slow sharply and thus lower the potential growth rate.

But the ABS admitted the 24 million happened 17 years before it expected:

When Australia’s population reached 19 million on 18 August 1999, the factors of population increase were such that the forecast was for the national population to reach 24 million in 2033. However rather than each new million being added every 7 to 9 years as was forecast based on the trends at the time, Australia is adding an extra million every 3 years (increasing from 21 million to 24 million in 8 years and 8 months).

Forecasting is a mug’s game clearly. But perhaps Australia’s long term economic future is not as dire as some think.

You can catch me on Twitter.

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

Deutsche Bank (redux)

Deutsche has been one of the catalysts for the relief rally over the past couple of days. On Friday it announced plans to buy back $US5.4bn dollars of its bonds. Moody’s also confirmed their view that Deutsche will be able to meet its interest payments for the next 2 years.

How comfortable or otherwise the market becomes about Deutsche Bank’s balance sheet, is likely to be one of the drivers of how far this global stock market recovery extends.

Last week I featured, 2009 and Fibonacci supports on Deutsche’s monthly chart as the stock of the day. At this stage the stock has held that support zone. It hasn’t yet been a particularly robust bounce though. Last night it fell away from resistance just above a minor double bottom pattern. It really needs to clear this to instil a bit more confidence in the case for a decent corrective rally.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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