It’s all about oil overnight after a big draw in US inventories caught traders on the hop and drove WTI crude $2.21% higher to $51.43 a barrel.
That helped energy stocks in the US which, along with materials and financials, drove the S&P a little higher.
But “little” is the right way to characterise it, with the end of day leaving the market with only small gains even though earnings were mostly beats during trade. That sets up a positive start to the day for the local stock market with the December SPI 200 contract up 9 points after yesterday’s 24-point rally.
In other markets, the big news is that the Aussie dollar has climbed above 77 cents for the first time in a month, leaving the Aussie as the best performing major global currency in the past 24 hours. Gold is also higher, but iron ore had a quiet day.
All eyes will be on Australia’s terribly volatile, somewhat unreliable, but extremely employment jobs data for September when it is released at 11.30am AEDT.
Here’s the scoreboard (7.59am):
- Dow: 18202 +41 (+0.22%)
- S&P 500: 2144 +5 (+22%)
- SPI 200 Futures (December): 5,415 +9 (+0.2%)
- AUDUSD: 0.7719 +0.0053 (+0.75%)
The top stories
1. The Australian dollar is back above 77 cents. The Australian dollar is strong this morning. Very strong – up around three-quarters of a cent since 8am yesterday at 0.7719. That is an impressive move given the multiple rejections the Aussie has seen above 77 cents over the past few months. That the Aussie has been able to outperform the rest of the majors suggests that for all the bearish calls from commentators we’ve seen this week, some sector of the market is looking at the Aussie as a reflation play.
The Australian dollar is climbing a wall of worry and has much wood to chop in terms of a convergence of multiple resistance from multi-week, multi-month, and even multi-year trendlines that the bears won’t be giving up any time soon. But if the Aussie manages to take out the 2016 high, it could rocket toward and above 80 cents quickly.
Here’s the monthly chart showing 2016’s lows might have been the bottom for this run. Time will tell.
2. Here’s another sign Australia’s economy is doing okay. The index of sales through the CBA’s vast credit and debit card network hit a 17-month high in August. After the Dun and Bradstreet and NAB Business surveys recently, this survey appears to confirm the Australian economy is doing pretty well compared to what many think.
3. Here’s why bond investors are so scared of rising interest rates. I had a great chat with a couple of senior managers of Manulife’s unconstrained global bond fund. We talked about how they invest, where they are invested, and the fact they didn’t buy the recent Australian government 30-year bond. And we talked about how the structure of the global bond markets makes bond investors way more exposed to a sell-off than they were in the past.
It helps explain why there is so much fear of rising rates. Put simply, bond managers have nowhere to hide and will lose a lot of money. I’ve got more here.
4. But Albert Edwards says we should stop worrying a bond market meltdown – because everything else is going to blow up. Bob Bryan reports overnight that while it may be surprising that Soc Gen’s uber-bear is sanguine on the outlook for bonds, it’s really just because in his opinion is that everything else will tumble.
“In the next recession, I see both more fiscal expansion and more QE,” wrote Edwards. “I expect US 10-year yields to converge with Japan and European yields at around minus 1% in the next recession.”
Good news if you’re a bond investor perhaps, but not for anyone else.
5. The Saudis issued a monster $17.5 billion sovereign bond. And that tells you the Kindom is serious about oil production cuts. Bear with me. I’m not drawing a long bow extrapolating the issue of the Saudi sovereign bond with the moves in oil and the determination of the Saudis and their partners to cap production and get oil back into the mid $50 a barrel region. That’s because this bond issue is all about stabilising the Kingdom’s finances which have been under acute pressure.
Reuters, via Business Insider US, has the details of the issue here and reports that last year the Saudi budget deficit of $98 billion was 15% of GDP. So the Saudis are borrowing to plug the gap. But another way to do that is to increase revenue by pushing oil prices higher.
While I’m on oil and the Saudis, it’s worth noting that Kalid al-Falih, the Saudi oil minister, told a conference in London overnight that “market forces are clearly working after a testing period of sub-$30 prices. The fundamentals are improving and the market is clearly balancing the supply and demand equation.”
6. The Fed’s Beige Book showed that the labour market is tight. But it also said “moderate” 69 times. According to the Fed, wage growth remained modest. However, some districts reported wage pressures because there weren’t enough available workers.
If Janet Yellen wants to run the economy hot, the Beige Book gives her room to do it.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Punters get a big new gaming company
Yesterday’s announcement of a merger between Tabcorp and Tatts has been pretty well received by shareholders. There will be significant synergy benefits. Management is predicting the deal will lift the earnings per share of both companies from the outset.
The merger will also have strategic benefits, giving the company scale in an industry that’s consolidating globally. It will be a first step in consolidating racing’s separate state pari mutuel pools into a single national pool. This will create efficiencies but also improve competitive liquidity with markets like Hong Kong.
Tatts shareholders had most of the initial gains with the stock closing up 16% yesterday. However, the share price finished 7% below the theoretical merger value, possibly reflecting the fact that the deal still has to be approved by the ACCC.
For Tabcorp, the announcement came just in time to see it respect a well-established trend line with a 3.5% rally on the day. This trend line should continue to provide significant support at around $4.82.
Ric Spooner, chief market analyst, CMC Markets. You can follow Ric on Twitter @ricspooner_CMC
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