US stocks ended the week a little lower after news broke that the Chinese Navy had grabbed a US underwater drone in international waters. It was just a little reminder that Sino-US relations, and geopolitical tensions could be just as much of a focus for markets in 2017 as the economy boosting Trumponomics.
The wash-up was only small moves lower however, with the SPI 200 March contract market prices down only 4 points at the close. That suggests mild downside pressure when stocks open. But the reality is the release of MYEFO will dominate sentiment today.
On forex markets, US dollar strength and potentially worries over a MYEFO related downgrade to Australia’s AAA rating has weighed on AUDUSD which is now back under 73 cents and looking weak.
On commodity markets, gold is still languishing, copper is at risk of a big reversal and oil is higher after Goldman Sachs upgraded its forecast for WTI in 2017.
Here’s the scoreboard (8.06am AEDT):
- Dow: 19843 -9 (-0.04%)
- S&P 500: 2259 -4 (-0.175%)
- SPI 200 Futures (March): 5,489 -4 (-0.1%)
- AUDUSD: 0.7298 -0.0054 (-0.73%)
The top stories
1. Michael Lewis. There is no better writer on the planet Earth than Michael Lewis for making difficult financial and other concepts accessible to the masses. He’s just written a brilliant book on the fathers of behavioural finance and he spoke with Business Insider in our latest interview.
I’m halfway through Lewis’ “The Undoing Project” which chronicles the relationship between Amos Tversky and Daniel Kahneman and how these two opposites were attracted to each other, and through their work not only revolutionised psychology but economics and finance. To say these guys had a massive impact on me and my career is no understatement.
Lewis’ storytelling is once again central to giving us a window into these two men’s friendship and work together. And he sat down with Business Insider’s Richard Feloni in our latest interview.
2. The ASX 200 needs US stocks to keep climbing if it’s going to break the 2016 high. The ASX200 traded to a high of 5595 before closing the week at 5532, down around half a per cent from the previous week’s close and about 1% from that high.
That the ASX high was when the US stock market was at its peak continues to suggest local traders need the support of an offshore rally to take prices back up and through the year’s highs. Is it a bridge too far? Without a further rally in the S&P 500 it seems unlikely, our favourite chart suggests.
3. Has the Trumponomics rally run ahead of itself? Some say yes, others, no. Akin Oyedele has an interesting article covering the view of Randy Frederick, vice president of trading and derivatives at Charles Schwab, who says he’s worried about the fact there is so much optimism and is “worried about is that it seems like nobody is worried about anything right now”.
Yep, when everyone is looking in one direction there is always a chance they fall over something they don’t see. Which is one reason why Kase Capital Management founder Whitney Tilson says about 60 per cent of his assets are sitting in cash. Bloomberg reports Tilson said “I am highly skeptical of this Trump rally”.
“I’m finding tons of shorts and no longs…Investors appear to have collective amnesia about the nature of the man who takes office in less than five weeks,” Tilson said.
But Barron’s this week says its panel of stock market strategists believe “this bull market has legs”.
Barron’s said “the unexpected election last month of Donald J. Trump as president has been a game changer for the 10 investment strategists whose market outlook Barron’s solicits twice each year. As stocks took off on Nov. 9 and thereafter, fueled by investors’ enthusiasm for Trump’s expected pro-growth agenda, even our group’s bears turned bullish. Wall Street’s seers expect the bull’s romp to continue well into next year, and posit a possible awakening among institutional and individual investors of the animal spirits that were dormant for the past seven years.”
4. 2017 is going to be a huge year for China and not just because of Donald Trump. Elena Holodny has a cracking article on the year ahead for China. It’s huge. And not just because of the potential face-off with Donald Trump. Elena highlights it’s also a big political year for China internally.
She says as both the domestic and international political situations grow more uncertain, the party might try to push forward some short-term growth initiatives. Worth a look – you can find more here.
5. ICYMI Friday – new RBA research reveals why so much of monetary policy has been focused on borrowers. Many self-funded retirees have had a tough time of it over the past few years as rates fell and their income dropped accordingly as the rates on their term deposits were lowered. It led former RBA governor Glenn Stevens to remark that he understood the pain because he got so much feedback after each rate drop from retirees. But he cut anyway.
New research from the RBA reveals why that was the case. Put simply, the net benefit to economic growth dropping rates to lower home loan rates for borrowers had a bigger net impact on the economy because borrowers have more debt than lenders have investments.
6. And just because it’s the week before Christmas doesn’t mean it is going to be a quiet one. Treasurer Morrison’s MYEFO update today runs the risk of getting Australia a ratings downgrade, says NAB. We also have a Bank of Japan meeting and a speech from Fed chair Janet Yellen. And that is just in the next 24 hours.
From Ric Spooner at CMC Markets, here’s today’s Stock to Watch
I wrote a piece on gold miner, Newcrest last week suggesting it might be a reasonable hedge against the possibility that the year-end rally in stocks and the US Dollar will correct in the New Year.
While nothing has happened to change this basic idea, the high momentum sell-off that saw Newcrest plummet to the bottom end of a chart support zone suggests a bit of caution.
When markets are falling hard like this, a standard trader strategy is to wait for some sign that downward momentum is easing rather than trying to catch the metaphorical “falling knife”.
It’s possible we saw some early signs of easing momentum on Friday, time will tell. After hitting the support line at $16.35, Newcrest rallied to close at $16.75. With gold steadying on Friday night, it might improve again today. However, to really show signs of reversing, it might be prudent to wait for Thursday’s gap to be filled with a move up past $17.50.
The more appealing alternative for potential buyers now be for Newcrest to drift lower and do a little bit of work in the next support zone between $15.75 and $16.30 sometime soon. If it then began to make higher lows and higher highs, that would also provide a bit of comfort that the knife has stopped falling.
Ric Spooner is chief market analyst at CMC Markets. You can follow Ric on Twitter: @ricspooner_CMC