6 things Australian traders will be talking about this morning

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The combination of weaker commodity markets and the FOMC decision at 5am AEDT tomorrow loomed large in traders’ minds over the past 24 hours. That constrained the stock market bulls, dragging European bourses lower, kept a lid on the US stock market rally, and weighed on the Aussie dollar.

At the close, the Dow eked out another small gain, the S&P 500 dipped a few points and the SPI200 futures suggest a mildly negative bias when the ASX opens this morning. That’s if local traders can ignore the 1.3% fall in crude and the big fall in iron ore from the early week highs. Add in BHP’s fall of 6.5% and Rio’s drop of 4% in London last night and it could get interesting for local traders.

Here’s the scoreboard (7.58am):

  • Dow: 17,251, +22 (+0.13%)
  • S&P 500: 2,016, -4 (-0.18%)
  • SPI200 Futures (June): 5,084, -7 (-0.1%)
  • AUDUSD: 0.7455, -0.0061 (-0.76%)

The top stories:

1. The ASX200 remains under pressure. That inverted hammer technical traders were talking about yesterday turned out to be a good signal of the impending selling on the local stock market. With a close at 5,111, the ASX200 was more than 100 points off Monday’s high and looking wobbly into the close. US markets haven’t given a strong lead and the SPI futures have only moved a few points.

Given crude crashed another 2% after the 3% loss the day before, and given iron ore futures dipped another 1.3% in New York trade, there is a chance the bears have a push toward support in the 5043/5071 zone. That should hold in the run up to the FOMC decision tomorrow morning. After that traders can make a more informed decision about the outlook. Personally I think the Fed is going to signal more tightening than the market is currently pricing.

ASX200 Daily (Reuters Eikon)

2. The Australian dollar as a reserve asset? In the couple of years after the worst part of the GFC, a debate raged in some quarters of whether the Aussie dollar was a safe haven or a safe harbour. The Russian central bank, amongst others, announced it was buying Australian dollars and many believed that Australia’s status in the global investment community had changed to that of safe haven. I argued it was just a port in a storm and as soon as the bad time returned for the economy and other assets offered favourable returns, the Aussie would fall. As evidence, I offer the move from 1.1080 to the 0.6850 low recently.

But it seems I might be wrong. In affirming Australia’s AAA rating yesterday, credit rating agency Fitch gave as one of their reasons the “growing recognition of the Australian dollar as a reserve currency.” Frankly that’s the last thing we want because we need the Aussie to fall when the Aussie needs to fall, not be supported by foreign central banks. But it’s an interesting shift and the metrics stack up. I’ve covered the Fitch report here.

3. Here’s what you need to know about tonight’s huge Fed announcement. Tomorrow at 5am we’ll get the FOMC’s latest interest rate decision. No one really expects the Fed to move – actually, four economists do – but that doesn’t mean this is not a live meeting for traders. That’s because we’ll get the Fed’s latest dot plot “forecast” of interest rate moves this year, economic projections and a press conference from Fed chair Janet Yellen.

It’s a huge event and Akin Oyedele has a great primer here.

4. This US investment banks says the global market storm has passed. The rout in markets has given way to recovery and analysts at investment bank Jefferies, led by Sean Darby, reckon the recovery is going to stick. They attribute that to two key factors easing monetary conditions, which makes it cheaper to borrow and swap out maturing debt, and a recovery in oil.

Ben Moshinsky has more here. Would it be disingenuous of me to mention easier monetary conditions as less of a handbrake on the Fed? Probably.

But Jeffries is not alone. Billionaire Leon Cooperman says we’ve seen the stock market bottom for the year.

5. But, Mohamed El-Erian says the time is nearing when policy makers either step up or step out. Like the couple in Wedding Parties Anything’s great song “Step In, Step Out”, central banks and the economies they are the custodians of appear increasingly to be living in different worlds. Policy tools are becoming impotent and the world is mired in low growth, low inflation, and low interest rates.

That has to end, says El-Erian, the former PIMCO CEO and current chief economic advisor to Allianz. Ben Moshinsky reports El-Erian says policymakers will either watch helplessly as the world sinks into a mire of financial volatility and political collapse, or they will find a way to unlock the piles of corporate cash sitting on the sidelines, reinvigorating growth.

Ahem, if I may add something. Olivier Blanchard, lately of the Peterson Institute and former IMF chief economist, said last week as context that growth at present is weak. But not in the context of the last 2000 years.

6. Hedge fund schadenfreude. Volatility is the friend of some traders but the enemy of most and hedge funds are having just as rough a time of it as anyone. Earlier this week we learnt that China is crushing hedge funds that bet against its currency. Overnight we learnt that they are getting crushed, as the once-loved Valeant shares tanked overnight.

Myles Udland reports, “Bill Ackman, by our maths, lost about $1 billion on Tuesday as shares of Valeant Pharmaceuticals were cut in half after the company gave a disappointing earnings outlook and basically did nothing to reassure investors that the very messy last six months are close to being anything like fixed.”

And the overnight round-up of key data(courtesy BNZ Markets)
NZ GDT (Event 160): GDT price index down 2.9%
BOJ: No change to policy settings
US Retail Sales: -0.1% m/m (-0.2% exp)
US Empire Mfg. Index: +0.62 (-10.5 exp)

Have a great day. You can catch me on Twitter.

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

BHP

The recent commodity rally got well out in front of any actual changes in demand supply fundamentals. Not surprisingly we are now seeing a bit of selling.

New York trading suggests BHP will open around 2% lower this morning and a correction is well under way. This doesn’t have to mean we are headed for new lows. There is now much more clarity now around BHP’s liabilities for the Samarco mine disaster in Brazil. It’s also a reasonable bet that we will see cuts in US oil production over the next few months. That doesn’t necessarily imply a bull market in oil but could see prices stabilise above last month’s lows.

BHP’s 50-day moving average is now tracking sideways, suggesting a period of range trading behaviour. The zone between this average and the 78.6% Fibonacci retracement level ($15.25/$16.10) might prove to be support.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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