Stocks are lower this morning. Ostensibly this move is being blamed on the big fall in crude oil which has seen Nymex Crude drop 2.255%, back below $35 a barrel. But the linkage could also be that macro-traders are betting on a stronger dollar on the back of Fed promises of more action in 2016. That will undermine stocks.
Either way though, the impact of the 1% falls in the US is that the March SPI200 contract has dropped 42 points, or 0.8%. That selling accelerated into the US close. That move has given back more than half of yesterday’s 1.4% rally and traders might decide to sell a little harder today given the commodity selling last night and the fact it’s also Christmas party season.
So, the scoreboard (8.10am):
- Dow: 17,495, -253.25 (-1.43%)
- S&P 500: 2,048, -26.59 (-1.18%)
- SPI200 Futures (March): 5013, -42 (-0.8%)
- AUDUSD: 0.7118 -0.0114 (-1.56%)
And now the top stories:
1. The Aussie dollar was crushed last night. Usual transmission has resumed after the Australian dollar dropped 1.58% to 0.7117 this morning. That’s a little higher than last night’s low of 0.7098 while commodities were crashing and the US dollar surging. The overnight move is in stark contrast to the weird rally we saw post-Fed yesterday morning.
Glenn Stevens and his colleagues Messrs Debelle and Lowe might have a little Christmas drink up at the top of the RBA’s Martin Place headquarters tonight. No doubt they’ll raise a glass to Janet Yellen and the Fed now the Aussie dollar is under pressure again.
2. Commodities were hammered. Oil was crushed last night. Down 1.75% back under $35 a barrel. Copper pulled back to $2.04 a pound. BI UK’s Will Martin says that: “Of the 11 major metals traded on US and UK exchanges, all have lost value.” Ouch!
Of course the main culprit is a stronger dollar on the back of the Fed’s rate hike. That implies more commodity weakness into 2016 if the dollar remains strong and unless or until the data starts to undermine the Fed’s plan to raise rates.
But in good commodity news last night, David Scutt reports iron ore rallied.
3. Santa’s rally might be fading but one of Wall Street’s biggest bulls says 2016 will be huge for stocks.Fundstrat’s Tom Lee has published his 2016 outlook for the stock market with a target for the end of 2016 of 2325. That’s about a 12% rally next year. Lee noted investors are still really worried about what the impact of Fed rates might be but his thesis has six main convictions that lead to his call for a 12% rally next year.
Akin Oyedele from BI US has more here.
4. Can the Fed really deliver its 1% tightening next year? This is the big question traders are asking. Last night’s moves in markets were largely driven by forex traders. They bought the US dollar on the bet that the Fed will at least try to implement its 1% tightening next year. That’s while the rest of the world is stuck with weak economies and low or zero interest rates. But it’s clear there is a fair amount of skepticism the US economy won’t allow the Fed to do this because it’s too weak and inflation is absent.
David Scutt has had a look at the big problem with the Fed’s plan, which is no central bank has been able to pull this off in recent history. This time is different, right?
5. Westpac has joined a banking dream team looking at blockchain technology that could change the face of banking.In his end of year interview the other day, RBA governor Stevens said the really cool thing about Bitcoin was the blockchain technology that underpinned it. That was because its decentralisation offers opportunities for disruption. But Westpac has joined a group of 42 banks trying to get blockchain to work for them. The CBA, NAB and Macquarie are also members.
6. China’s plans to debase it’s currency and weed out corruption continue. Only in China could you talk about exchange rate policy and a governmental push to weed out corruption in the economy. But these are just two arms of the multifaceted plans of the Chinese Communist Party and the central bank to put the economy on a better footing for the long run.
Yesterday the yuan fell to another weakest level against since 2011 with the USDCNY closing at 6.4822 (higher USDCNY is a weaker yuan). This move looks set to continue in the year ahead and is likely to put pressure on China’s trading partners. But China is also putting pressure on its own economy and the Wall Street Journal reports this morning that Beijing is probing the architects of the stock market rescue. The WSJ says:
Communist Party graft busters are investigating whether officials inside the China Securities Regulatory Commission used their knowledge of the rescue effort to enrich their friends or themselves, say agency officials familiar with the probe. In recent weeks, they have been taking officials, one by one, to a hotel close to the agency’s headquarters to press them to come clean or report on others, the officials say.
There is a clear message here for traders. China is serious about reforming its economy.
It also means it will stay in the headlines for most of 2016.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Cabcharge (CAB: ASX)
Yesterday was a historic one for the taxi industry. The NSW government announced that it will legalise commercial ride sharing services like Uber.
Perhaps reflecting that the announcement was a mixed bag, Cabcahrge’s share price was largely unmoved by the announcement.
Individual taxi license holders will receive compensation for the loss of value in taxi licenses. Cabcharge also owns a lot of licenses but this won’t be much help to them. The move only applies to pre booked rides and not to those hailed on the street or picked up at ranks. It also means Uber drivers will now have some costs of complying with regulation. Overall though, yesterday’s announcement legitimises ride sharing and is another milestone on the journey towards increased competition. That’s good for consumers and bad for Cabcharge shareholders.
Ric Spooner, chief market analyst, CMC Markets