6 things Australian traders will be talking about this morning

Stocks in the US have managed to claw back into positive territory at the close but traders in the US again opened the day by selling even though Asia and Europe ended positively.

That is an interesting window into the psyche of US investors.

And it sets up an interesting day in Asia today with the ASX futures suggesting a fall of 15 points, 0.3%, when the market opens this morning. But as someone asked me yesterday: “Are futures ever right?”

But while stock traders figure out whether to hit the buy or sell button there is no such conflict in oil markets. Prices crashed again overnight. That will undermine the energy sector on the ASX.

On forex markets, the Aussie is back above 69 cents and looking healthy this morning along with the Kiwi.

Here’s the scoreboard (8.20am):

  • Dow: 16,016, +28 (+0.17)
  • S&P 500: 1,881, +1 (+0.05%)
  • SPI200 Futures (March): 4,833, -15 (-0.3%)
  • AUDUSD: 0.6914, +0.0054 (+0.77%)

And the top stories:

1. The world is drowning in oil. Myles Udland from BI US reports that the International Energy Agency said that adding Iran’s expected oil production of about 600,000 barrels per day to the market’s current output could cause the world to “drown” in oil in 2016.

And this could send the already depressed price of oil even lower. Nymex crude fell 3.33% overnight to $28.44.

2. China’s economy is slowing but it hit an important milestone in 2015. China’s economic growth continues to lose momentum. But against this backdrop of slowing growth the economy continues to make the much-needed economic transition. David Scutt reports that “the nation’s tertiary industry – largely encompassing services – accounted for 50.5% of GDP in 2015, an acceleration of 2.4 percentage points on a year earlier and some 10.0 percentage points above secondary industries, the sector that up until recently was the largest component of China’s economy.”

3. RBC says the weakness in global stocks is a buying opportunity. The US economy isn’t heading into recession territory and that makes the current sell-off a buying opportunity, according to Royal Bank of Canada strategist Jonathan Golub.

“While credit spreads have widened, oil prices have collapsed, and profit forecasts are being adjusted downward, the majority of economic indicators point to continued economic expansion,” he wrote in a note to clients overnight.

4. But Morgan Stanley’s top stock picker says he doesn’t know what’s going to happen. Adam Parker, Morgan Stanley’s top equity strategist in the US, was surprisingly candid again overnight saying he’s not sure where things are going at the moment.

That’s a brutally honest call given he’s paid to be the guy that says he knows what’s going on all the time. Here’s what he said:

Trying to figure out where the market is going is like taking something we don’t know how to forecast (the price-to-earnings ratio for the market) and multiplying it by something we aren’t very good at forecasting (the earnings for the market),” Parker writes.

Myles Udland has more here.

5. “Barring recession” is the new go-to phrase for analysts worried their forecasts will be wrong. The US economy doesn’t feel like it is nearing recessionary territory as Jonathan Golub points out. But BI US deputy editor Sam Ro reports that “barring recession” is the new get-out-of-jail-free card that strategists are giving themselves in their research notes.

As a behavioural finance/economics guy, I find that fascinating. These guys and girls are paid a lot of cash to think about markets. So the fact that recession is even entering their notes suggests it might be a bigger chance that we all think and markets are currently pricing it in.

6. I would like some of what the IMF is drinking. The FT reports this morning that the IMF has released its latest report in which it says markets are “over reacting” and that the global economy is improving.

That feels incredibly Panglossian, particularly given they are forecasting a pickup in advanced AND emerging economies. But the FT says the IMF “warns that if the gloomy mood seen so far this January continues, there is a risk that the world could plunge into the third leg of a global financial crisis”, with “broader contagion effects darkening the outlook worldwide.”

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

Rio Tinto

The commodity bear cycle grinds on. Yesterday saw news that China’s steel production fell 2.3% last year. On the same day Rio produced a solid production report which showed its iron ore production was up 11% last year. It’s forecasting another 7% increase this year.

There are signs that high cost iron ore producers are cutting production as demand drops and low cost production increases. China’s iron ore imports were up 2% last year despite lower steel production. The difference indicates China’s domestic iron ore production is dropping.

This is probably just as well. Brazil’s Vale and other iron ore miners still have large new production capacity in the project pipe line.

Rio’s long term monthly chart is back into the oversold zone and it’s hit the 61.8% target for the bearish triangle it dropped out of in July. A short term bounce is looking more possible. However, it’s trending down strongly on this long term chart and there is not a lot of support until the $29-$33 level.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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