6 things Australian traders will be talking about this morning

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Stocks surged as traders bet that weaker than expected data in the US took the Fed well and truly off the table for September, and maybe even 2016.

That strength means the local market is likely to have a solid day if the futures traders are correct. The December SPI 200 contract is up 33 points.

The Australian dollar also benefited from the risk on tone in markets and it’s back above 75 cents this morning and looking strong. Also looking stronger are commodity markets. Oil recovered a little, copper remains strong but gold has lost its lustre this week.

Here’s the scoreboard (7.56am):

  • Dow: 18212 +177 (+0.99%)
  • S&P 500: 2147 +21 (+1.01%)
  • SPI 200 Futures (December): 5,262 +33 (+0.6%)
  • AUDUSD: 0.7515 +0.0049 (+0.65%)

The top stories

1. Australian consumer inflation expectations are at risk of slipping anchor – that puts the RBA firmly back in play. Central bankers try to manage inflation, the economy, and unemployment by raising, or lowering, interest rates. But the ability to fulfill these goals is in turn influenced by consumer inflation expectations and how they move.

So the RBA will be concerned that consumer inflation expectations are falling again. While those who took a guess say inflation will print around 3.3%, the wider population in the survey who express inflation in a range has seen the average expectation of inflation drop to 2.1% – the lowest level since the GFC. The RBA will be watching closely, says the NAB.

2. If the ASX 200 can finish the week above 5255 the outlook brightens. The ASX 200 showed some solid signs that a recovery was in the offing by grinding back into the black yesterday to finish up 12 points at 5239. That means the physical ASX 200 index needs to rally just another 11 points to 5250/55 zone to break back into its 2016 uptrend.

If it can do that it will signal a false break for the chartists on a weekly basis and could even signal a run toward 5335, almost 100 points from last night’s close. But we have to see the ASX close above 5255 today first.

ASX200 (Reuters Eikon)

3. Long bonds are at “the mercy of a correction”. “Global yield curves have maintained a bias to steepen, The US 2-year rate is down 3bps to 0.73% following a series of soft economic indicators, while the 10-year rate is flat at 1.70%,” Jason Wong, a currency strategist at BNZ Wellington wrote this morning. That’s really good news for investors who need a little bit of slope in the yield curve.

But the signs are increasingly growing that the current move could see rates rising another 20 or 25 points into the 1.90%/2.0% zone for US 10-year Treausuries according to Stéphanie Aymes and Loic de Galzain from Soc Gen. Jonathan Garber has the details here. Ugly.

4. Bonds might be rising but the Bank of England hinted at another rate cut. Just when you thought the paradigm at central banks might be changing, the Bank of England hinted at another rate cut, Will Martin reports.

“A majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of this year,” the Bank said.

Now we wait for the BoJ next week. Rumours in the market, and news stories quoting sources, say that it is a bank divided. So we’ll be watching that space carefully.

5. US data overnight was awful and the Fed is out of play. There is so much US data to talk about this morning. On balance it was awful and the wash up is it’s dropped the chances of a rate hike in September to just 12%, and under 50% for December, according to the CME Fed watch tool.

Source: CMEGroup

That’s after retail sales missed badly to the down side, industrial production fell more than forecast and producer prices remained unchanged. Add in the weakness in the New York based Empire manufacturing index and even the big surge in the Philly Fed index couldn’t stop the Atlanta Fed’s GDPNow from dropping to 3% from 3.3% last.

6. Here’s our latest Devils and Details Podcast with JP Morgan’s Kerry Craig. It will end badly. That’s what Kerry Craig had to say, among many other things in a wide ranging chat, about the current round of central bank policy and negative rates. When that end comes is unforecastable but be had a crack about trying to figure out the recent moves and what they mean.

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 manufacturing PMI, Aug: 55.1 vs. 55.8 prev.
NZ: GDP (q/q%), Q2: 0.9 vs. 1.1 exp.
AU: Employment change (‘000), Aug: -3.9 vs. 15.0 exp.
AU: Unemployment rate (%), Aug: 5.6 vs. 5.7 exp.
UK: Retail sales (m/m%), Aug: -0.2 vs. -0.4 exp.
UK: BoE bank rate (%), Sep: 0.25 vs. 0.25 exp.
US: Advance retail sales (m/m%), Aug: -0.3 vs. -0.1 exp.
US: Retail sales ex auto (m/m%), Aug: -0.1 vs. 0.2 exp.
US: Philly Fed business outlook, Sep: 12.8 vs. 1.0 exp.
US: Empire manufacturing, Sep: -2.0 vs. -1.0 exp.
US: Industrial production (m/m%), Aug:-0.4 vs. -0.2 exp.

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

Myer (MYR: ASX)

The market response to Myer’s profit was pretty whippy. The stock traded through a range of 11c yesterday which is over 8% of its value. Volume was also chunky at 10.1m shares on the day. This is the biggest turnover since February. All this possibly reflects the large short interest in the stock. At the end of last week, shorts represented over 15% of shares.

In the final analysis, it was a solid result without many surprises. The share price ended up finishing largely unchanged and that looks a pretty sensible outcome. Myer is one year into a 5 year turnaround strategy. This is showing encouraging signs in those stores in which it has been introduced. The aim is to improve productivity and sales per square metre. Management sees enough progress to indicate that EBITDA growth will exceed sales growth in F17 and that Net Profit after tax will return to growth.

Buyers hunting for a bit more value might keep an eye on the next support level around the 78.6% Fibonacci retracement at $1.16.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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