6 things Australian traders will be talking about this morning

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Stocks in the US rallied again with the big three indexes hitting new record highs overnight. That’s despite weak Empire State Manufacturing data as traders appear to be betting that the Fed won’t be able to raise rates and other central banks will need to keep the pumps primed.

The washup is that after a 9 point rally on the ASX 200 yesterday the September SPI 200 futures are pointing to an 8 point rally when the market opens today. Earnings reports remain important with Domino’s, Challenger, and then BHP after the close tonight the key highlights.

Elsewhere oil roared another 3% higher as the Saudis and Russians make all the right noises about production cuts. Gold was a little higher, as was copper while the US dollar was a little weaker.

That helped the Aussie dollar find support as traders await the release of the RBA minutes at 11.30am this morning.

Here’s the scoreboard (7.48am):

  • Dow: 18636 +60 (+0.32%)
  • S&P 500: 2190 +6 (+0.28%)
  • SPI 200 Futures (September): 5,503, +8 (+0.1%)
  • AUDUSD: 0.7670 +0.0015 (+02%)

The top stories

1. Big-name billionaire investors are turning bearish stocks. The are a raft of 13-F filings out in the US – that’s the regulatory report where the big hedge funds state the positions they are holding. The news is that some of the big names in the hedge fund industry are pulling back on their stock positions.

Reuters reports: “George Soros, Jeffrey Gundlach and David Tepper were among the billionaire hedge fund investors and money managers who slashed their long equity positions in the second quarter, according to regulatory filings”.

Separately Reuters also says Soros has cut his gold holdings by a long way.

2. Here’s a great chart that shows why some of the bears are so bearish. Many folks hate the stock market rally right now. Well haters gonna hate, but maybe they have a point. That’s certainly the case if this chart via the SoberLook Twitter feed is any indication.

What the chart shows is the strong relationship between crude and the MSCI ACWI index. MSCI says it “captures large and mid cap stocks across 23 Developed Markets (DM) and 23 Emerging (EM) countries. With 2,481 constituents, the index covers approximately 85% of the global investable equity opportunity set”. The relationship tells a story. Oil has been a big part of the moves for the past 12 months.

There is naturally two ways to resolve that. Stocks fall or oil rises. Or the correlation could break down completely as it has recently. Interesting.

3.But there is a rotation within the S&P 500 which has some folks getting bullish stocks. In the interests of balance it is worth noting that there is another school of though that says this rally is actually broadening and improving. Bloomberg has a great article showing that the rally is no longer centred around stocks that benefit in economic weakness.

“No longer are low-volatility stocks the leaders. Nor are utilities, or companies that sell toothpaste and handsoap. Nary a defensive share is rallying as leadership in the S&P 500 Index switches from the dividend-paying bond surrogates that ruled 2015 to technology, banks and commodity firms that benefit from an expanding economy,” Oliver Renick writes.

As I discussed in my weekly diary for the week ahead, US investment house Jefferies reports that “investors became more positive in equities and turned net buyers for the first time in four weeks, injecting a net US$6.3bn into global equity funds/ETFs”. There is so much money on the sidelines and Jefferies is warning not to fight the surge in cash.

4. But maybe the only way to fix the US and global economy is for the bears to be right. I didn’t plan on this being the bear-bull edition of 6 things. But I guess it sums everything up right now – the discussion around whether the stock market rally can hold or not in the face of a still relatively weak global economy.

Personally I hope it crashes – here’s why.

Bob Bryan reports on some research from Deutsche Bank’s fixed interest team which says, “without an external economic shock it is hard to see policymakers being prepared to take dramatic, fiscal action to jumpstart the global economy… Ironically the shock that is needed would require a collapse in risk assets for policymakers to then really panic and attempt dramatic fiscal stimulus”.

5.There is a lot of chatter about China and its economy again. The slowdown in China’s economy has been on the backburner for a few months. That’s probably because after many pundits forecast armageddon the Chinese economy just kept on keeping on. But that may have changed after Friday’s data dump. I’m not convinced it was as terrible as some say – but the fact that many are worried is what’s important.

That’s led the PBOC to urge investors not to be to concerned about short term divergence between economic growth and credit creation. It’s got Linette Lopez writing about China again too and she says the nation’s economy is about to get pretty weird (again).

6. The world’s largest shipping company has two dire warnings for the global economy. Akin Oyedele reports that Danish shipping conglomerate Maersk painted a grim picture on the state of its industry and warned about potential changes to trade policy. It said there is still too much capacity in the industry and it’s worried about potential changes to trade policy.

That matters because even though many developed markets are predominantly based on services and consumption, physical global trade is still a very important part of world growth. So Maersk is effectively saying it’s worried about the global growth outlook again.

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

Key data for the past 24 hours (with thanks to BNZ markets)
NZ: BNZ PSI, Jul: 54.2 vs. 56.7 prev.
JP: GDP (q/q%), Q2 P: 0.0 vs. 0.2 exp.
US: Empire manufacturing, Aug: -4.2 vs. 2.0 exp.
US: NAHB housing index, Aug: 60 vs. 60 exp.

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

Harvey Norman (HVN: ASX)

Harvey Norman shares rose 2.3% yesterday on the back of a strong result from JB Hi-Fi which grew comparable store sales 5.4% while at the same time expanding its gross margin by 3 basis points.

JB Hi-Fi is benefitting from the demise of Dick Smith and no doubt Harvey Norman is as well. This looks set to continue for a while. One of the most encouraging aspects of the JBH report is that the New Year has got off to a cracking start. Comparable store sales were up 9.5% for the month of July.

The issue for Harvey Norman shareholders now becomes whether or not the share price is already fully reflecting a strong result, setting up for a buy the rumour, sell the fact outcome. Not only was the stock up 2.3% yesterday, it has rallied 21% from its low in early July.

Yesterday the share price peaked neatly at a harmonic AB=CD level where the latest swing up exactly matches the one before it. If the stock begins to falter around this level, it would be a warning sign form a chart point of view. If the stock surges through this level then $5.48 becomes a potential chart objective. Here the CD swing will be a 127% Fibonacci extension of the AB swing.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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