6 things Australian traders will be talking about this morning

BEIJING – OCTOBER 01: Chinese tanks rumble pass Tiananmen Square during a massive parade to celebrate the 60th anniversary of the founding of the People’s Republic of China on October 1, 2009 in Beijing, China. The grand celebrations to commemorate the 60th anniversary of the founding of the People’s Republic of China included a military parade and mass pageant consisting of about 200,000 citizens in Tian’anmen Square. (Photo by Feng Li/Getty Images)

Stocks slipped overnight after UK inflation was higher than expected and two senior Fed presidents warned that the September FOMC meeting might be live for a rate hike.

That saw US stocks fall around half a per cent.

But the local market wasn’t too fazed, with the SPI 200 futures only down 6 points this morning. So it might be another fairly quiet day for the index with the focus again on individual stocks.

Elsewhere, Fed warnings didn’t help the US dollar and the Aussie is back near 77 cents after an aborted rally to 0.7750 again overnight. The Kiwi is doing superbly though, after a bumper dairy auction. USDJPY traded under 100 again.

Oil continued its rally up another 2%, iron ore rose by a similar amount and even gold was stronger.

Here’s the scoreboard (7.49am):

  • Dow: 18552 -84 (-0.45%)
  • S&P 500: 2178 -12 (-0.55%)
  • SPI 200 Futures (September): 5,482, -6 (-0.1%)
  • AUDUSD: 0.7693 +0.0023 (+0.29%)

The top stories

1. Glenn Stevens is on the hustings and says Australia needs to attract foreign investment, but not just to buy existing assets. Outgoing RBA governor Glenn Stevens has again taken the ball up on an important economic topic for Australia. Amid the current debate over the sale of Ausgrid in NSW, complaints by land holders about who they can sell to, and calls for transparency in FIRB desisions, Stevens says it’s okay to decide what foreign capital we take.

“Australia wants to be open to foreign capital. That’s our national philosophy. I think in that discussion it would be helpful to think about the kind of foreign capital we want…” He’s dead right. But Stevens is also having an adult conversation our policy makers often seem incapable of. I’ve got more here.

2. The Big Australian just posted the worst results in its history – that could be good news. Chris Pash reports that BHP Billiton’s results were a bit of a horror show with the mining giant posting a record A$8.3 billion loss. It’s an amazing number really with the results showing revenue was down 31% to $US30.91 billion ($A40 billion). But in a bright spot, underlying attributable profit was $US1.2 billion ($A1.56 billion), above expectations of about $US1.09 billion ($A1.4 billion).

So it’s not all bad news.

Nor is CEO Andrew Mackenzie’s comment that “steadily, the end of the supply creation on the back of the China boom is coming to an end, product by product, and that’s putting more of a floor under price than perhaps perceptibly existed maybe a year ago”. The question for traders though is, after a massive rally this year, do they want to take BHP much higher?

3. Danger Will Robinson – the Fed is trying to signal it’s a real chance to raise rates but no one is listening. Last week San Francisco Fed president John Williams said he thinks rates should rise again this year. But then markets focused on data disappointments and ignored him. Last night the New York Fed’s Bill Dudley, and Atlanta Fed’s Dennis Lockhart went further and said that they wouldn’t rule out September for a rate hike.

RBA governor Stevens even joined the fray telling the Wall Street Journal: “I can’t see why the global economy is really any less ready for No. 2 than it was for No. 1. It’s as ready as it has ever been in any of the other episodes. It’s always hard to raise rates anywhere.”

Stocks were off a little, bonds rose a few points but the US dollar found no support. Traders just don’t think the Fed will find the chutzpah to raise again it seems. That’s a danger and something to watch as we head toward Jackson Hole at the end of the month and then the September meeting. I don’t think it’s live but I do think they’ll ramp up the rhetoric.

4. regardless of the Fed, BAML says the stock market is about to have a “final melt-up”. Bob Bryan reports that Michael Hartnett, the chief investment strategist at Bank of America Merrill Lynch agrees with the notion we raised here yesterday about the change of leadership in US stocks actually being bullish for the market.

According to a note from Hartnett entitled “The Final Melt Up”, the shift of investors from defensive stocks (think industrials and telecoms) to more cyclical companies (retail, tech, and consumer goods) shows that investors’ appetite for risk is growing. This will create demand for stocks and drive the market upwards.

That bullish stance is reinforced by this analyst who says – a ‘trifecta’ has set up the stock market for a big move higher. Akin Oyedele reports Jeffrey Saut, chief investment strategist at Raymond James says while no-one “can consistently ‘time’ the various markets”, he sees a big bullish breakout coming.

Melt-up time?

5. So this is horror movie style scary for global finance – regulators are saying some clearing houses aren’t up to scratch. One of the big moves from the GFC was global regulators pushing derivatives trading from the opaque world of OTC markets onto regulated exchanges. That means that the trades are transparent and flow through a central clearing house.

But Ben Moshinsky covers a report from CPMI and IOSCO, the two regulatory bodies that make global rules for markets which says, among other things: “Some CCPs have not yet put in place sufficient policies and procedures to ensure that they maintain the required level of financial resources on an ongoing basis, including adequate arrangements to ensure a prompt return to the target level of coverage in the event of a breach…these are serious issues of concern that should be addressed with the highest priority.” Goodness me.

6. It’s tough in hedge fund land – Paul Tudor Jones is reportedly sacking staff. Billionaire Paul Tudor Jones is laying off about 15% of staff at his legendary hedge fund, Rachael Levy reports.

It’s been a tough year and apparently the job cuts are a result of investment losses and investor redemptions from the $11 billion hedge fund.

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)
UK: CPI (y/y%), Jul: 0.6 vs. 0.5 exp.
GE: ZEW survey expectations, Aug: 0.5 vs. 2.0 exp.
US: Housing starts (‘000), Jul: 1211 vs. 1180 exp.
US: Building permits (‘000), Jul: 1152 vs. 1160 exp.
US: CPI (m/m%), Jul: 0.0 vs. 0.0 exp.
US: Core CPI (m/m%), Jul: 0.1 vs. 0.2 exp.
US: Industrial production (m/m%), Jul: 0.7 vs. 0.3 exp.
NZ: GDT dairy auction (avg price USD): +12.7%

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

Mirvac (MGR: ASX)

There was a good response to Mirvac’s result yesterday. The stock finished up 3% but showed signs that it might fail for a third time at the $2.24 resistance.

Mirvac is a diversified property group that operates both as an investor and developer. As an investor, it’s largely about rental income and management fees from its portfolio of office; retail and industrial properties.

Its residential development division was responsible for about 29% of operating earnings before interest and tax and has been seen as a source of risk to future earnings growth. However, yesterday’s outlook statement seemed to dispel some of those concerns, at least for the short term. The company provided guidance for operating earnings per share growth of 8-11% in F2017. This is based on $2.9bn of residential pre sales. Despite an expectation that the Sydney and Melbourne property markets will moderate to more “normal” conditions, Mirvac has experienced only a “handful” of delayed settlements on pre-sold apartments and expects this will remain the case.

Chart wise, yesterday’s high of $2.24 is providing resistance while support is down around $2.07

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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