It doesn’t matter where markets finished on Friday night in London and New York.
What matters for traders today is what the fallout will be from the failure of the weekend meeting in Doha to agree to a cap on production.
Forex markets are the only ones open so far and already this morning the Australian and Canadian dollars have come under heavy selling pressure as traders bet that the fallout could see a big fall in crude and likely a big move in stocks. The yen is bid again as well which suggests that forex trader at least, are betting we get a big risk off move in Asian trade and US night trade during our day today.
Stocks are particularly vulnerable internationally because they stalled last week behind important resistance.
Here’s the scoreboard (7.38am):
- Dow: 17,897, -29 (-0.16%)
- S&P 500: 2,080, -2 (-0.1%)
- SPI200 Futures (June): 5,141, +4 (+0.1%)
- AUDUSD: 0.7664, -0.0058 (-0.8%%)
Now, the Top Stories
1. No deal for oil. Predictably the old “buy the rumour, sell the fact” trade has worked out perfectly with oil’s strength last week – which lifted it to the highest levels since November 2015 – likely to give way to weakness today after the failure of the meeting in Doha to decide a freeze on production. Traders had already started to figure that out late in the week with Nymex crude closing at $40.36, down more than $2 a barrel from the high of the week.
Key to the failure of talks is the Saudi-Iran face off. The Saudis won’t agree a deal unless Iran is part of it and Iran says the rest of OPEC just needs to get used to the fact they are back in the game and producing. I’ve got more on the weekend meeting here.
The NAB’s strategy team suggests traders will again focus on the supply overhang. Ray Attrill, the NAB’s global co-head of FX Strategy, wrote this morning that:
Regardless of whether an agreement yesterday by major producers to freeze oil production would have had any meaningful impact on oil prices beyond the psychological boost it might have provided, the failure of the Doha talks to agree anything serves to underscore the ongoing global supply/demand imbalance and which the fall-off in US shale oil output does little to correct.
2. The Aussie dollar has been walloped in early trade as traders fret crude could crash and risk will go off. It’s a truism that the Aussie dollar is the forex world’s favourite punt. Deep, liquid, and a proxy for global growth, and more latterly China, the Aussie trades well above its weight at number 4 or 5 on the currency league tables. A large part of the Aussie’s attractiveness to traders is its liquidity.
So this morning after news that there was no Doha deal for oil, traders, not just forex, look like they have sold Australian dollars early as a hedge against what could be a day of selling across markets more broadly. It’s recovered from what Reuters says was the very early low of 0.7588 to sit at 0.7662 now as more sober heads wake up and enter the fray. But that’s still down close to 0.8% on the 0.7719 close in New York Friday. That was the highest close since June last year.
Monday morning Asia is a notoriously dangerous and fickle time of trade – especially after big events like the oil meeting. But if crude collapses – as many traders will no doubt fear – then the Aussie is likely to come under selling pressure again.
3. Stocks today – no deal in Doha sets up an ugly day’s trade for stocks. The movers in crude oil, first down and then back up, have been integral to the overall moves in stocks over the past 6 months. So, if crude does indeed tank when futures open in Asia today, that will put heavy downward pressure on US and European stocks in futures trade and by extension the ASX 200.
In many ways the ASX is more exposed. Certainly the S&P, DAX and FTSE all ended last week just below important resistance which makes them vulnerable. But that could be doubly so for local stocks because of the high concentration of banks and miners in the index. Miners/energy companies will be under pressure if oil falls and risk goes off while the banks will suffer the second order effects of increased concerns of more bankruptcies in the energy sector global which will weigh on banks around the world.
It’s all supposition at this early stage but the risk is Nymex crude falls into the $37/38 range and they should weigh on risk, stocks in particular.
4. Hedge funds still hate China and reckon it will have to devalue its currency 15%. China has been doing better lately. Economic data has not been as bad as feared and has been on the improve in China, authorities have settled the yuan, the stock market has stabilised and there is a distinct air of calm.
But don’t tell that to the hedge fund community, many of whom are still betting that the yuan will need a big devaluation. Linette Lopez reports Anne Stevenson-Yang, co-founder of J Capital Research, said China has 9 months before its currency reserves “are down to a perilous point”. “In 12 months there will be a currency crisis of around 15%,” she said. “There will be a banking crisis two years later.”
5. Things must be getting really rough in the global economy – Deutsche Bank is having a serious talk about helicopter money. This is interesting. The analysts at Deutsche released a note late on Friday our time which looked at the idea that monetary policy is so ineffective at the moment that central banks will soon deploy “helicopter money”. The idea of helicopter money is exactly what it sounds like.
So it’s also far fetched right? Not so, according to George Saravelos, Daniel Brehon and Robin Winkler, who argued that helicopter money has been widely used in the past, and as a result putting it into practice would be “less unconventional than you think.” You just have to read this article.
6. And it’s a big week ahead for markets and traders – here’s my diary of the key events. We may be in the second half of the month, which means we get second tier data, but it’s another big one for traders. Here in Australia the highlights for me are the RBA minutes and the NAB’s bigger quarterly Business Survey. China is fairly quiet but we have plenty of Fed speakers and markets at critical junctures. You can read about it all in my weekly diary of all the key data and events.
And for those interested in a US-based emphasis on the week ahead, here’s Myles Udland’s excellent look at the next 5 days. As he said – it’s all about earnings. More here.
Key data for the past 24 hours (with thanks to BNZ markets)
CH: New yuan loans (CNY, b), Mar: 3700 vs. 1100 exp.
CH: Money supply, M2 (y/y, %), Mar: 13.4 vs. 13.5 exp.
CH: Industrial production (ytd, y/y, %), Mar: 5.8 vs.5.5 exp.
CH: Retail sales (ytd, y/y, %), Mar: 10.3 vs.10.2 exp.
CH: GDP (ytd y/y, %), Q1: 6.7 vs. 6.7 exp.
US: Empire manufacturing survey, Apr: 9.56 vs. 2.0 exp.
US: Industrial production (m/m, %), Mar: -0.6 vs. -0.1 exp.
US: Univ. of Michigan Sentiment, Apr P: 89.7 vs. 92.0 exp.
You can catch me on Twitter.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Boral (BLD: ASX)
Shares in the building products group have staged a great recovery, rising 24% over the past 2 months.
However, the chart outlook suggests this run could be nearing an end, at least for a while. On Friday Boral showed signs of backing away from the 78.6% Fibonacci retracement level which often represents a turning point. The rally from $5.11 has also been an Elliot 5 wave advance. A move below the high at “3” around $6.27 would be a sign of weakness setting up for a deeper correction.
Boral’s exposure to the US housing market is a positive, as is its exposure to infrastructure development in Asia and Australia. However, Australian dwelling construction looks like being a potential headwind as we move into next year. At around 19 times forward earnings, and given the chart outlook, potential buyers might be looking for a bit better value here.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.