Oil and Aussie dollar traders are battered and bruised after both markets sharply reversed the previous session’s strength in the past 24 hours.
The Aussie was hammered back from the resistance zone above 77 cents after the release of the jobs data yesterday, while oil fell on a stronger US dollar and comments Russia could increase production.
That big move in oil didn’t hurt energy stocks in the US and the market overall closed down only slightly overnight. As a result the December SPI 200 is off just 1 point suggesting a quiet end to the week for the ASX overall – but perhaps not BHP.
Elsewhere gold is off a little, copper is languishing, and bonds are a little better bid across the globe after Mario Draghi eventually implied QE will continue in Europe.
Here’s the scoreboard (7.57am):
- Dow: 18162 -40 (-0.22%)
- S&P 500: 2141 -3 (-0.14%)
- SPI 200 Futures (December): 5,424 -1 (+0.0%)
- AUDUSD: 0.7621 -0.0098 (-1.275%)
The top stories
1. We’ll hear more about this today – but overnight Brazilian prosecutors have charged 21 people with homicide over the Samarco mining dam collapse. Those charged include “former Samarco Chief Executive Ricardo Vescovi, Vale’s current iron-ore director Peter Poppinga, and five Vale and BHP officials who sat on Samarco’s board in recent years”.
2. Let’s talk about the ridiculous Australian jobs data yesterday. You just can’t have confidence in Australia’s jobs data. Certainly the data has always been volatile with a massive standard deviation relative to the market’s usual monthly guesstimates. But Paul Colgan did a nice job of explaining the financial malaise the ABS is in and the poor quality of its data is something treasurer Scott Morrison needs to fix.
The problem, as Paul points out, is that real decisions on consumption, investment, interest rates – and of course the Australian dollar’s level – are made on the back of this rubbery data. The ABS has tacitly admitted it doesn’t trust its own monthly seasonal adjusted numbers with a switch in focus to “trend” when it releases jobs each month.
It’s a disgrace, and as David Scutt pointed out yesterday, some of Australia’s top economists are politely scathing of the data and the ABS – check out what Paul Dales from Capital Economics has to say in David’s piece. But while the government is so publicly battling with itself over the Adler shotgun, it seems remote that anything will be done anytime soon.
3. And speaking of jobs, Morgan Stanley says the end of the housing boom could cost Australia 200,000 jobs. Morgan Stanley says the apartment glut and future development slowdown puts 200,000 jobs at risk and will see the RBA cut rates again in 2017.
Like the RBA, Morgan Stanley is worried about the wave of completions. “The greatest vulnerability is settlement risk on the 160,000 apartments we forecast being completed through the end of 2017,” the bank said.
4. Oil tumbled after the head of Russia’s oil giant said the country could increase production. It seems like there is only one man on the planet with the chutzpah to face off against Russian president Vladimir Putin and his name is Igor Sechin, the CEO of Russia’s largest oil company, Rosneft. A few weeks back when Putin said Russia was prepared to cut production, Sechin said “why” and overnight his comments that Russia “can significantly increase oil production” helped reverse the previous day’s rally.
5. Mario Draghi is trying to claim the ECB hasn’t discussed QE. The policy path the Bank of Japan is on, and Janet Yellen’s idea that maybe the Fed should run the US economy hot are examples of the new trend in central banking to be credibly irresponsible. But overnight Mario Draghi might have taken this approach to a new level.
Will Martin reports that with less than 6 months to go before the end of the ECB’s QE program, Draghi claimed the bank was yet to discuss extending its current quantitative easing program.
Initially that drove euro higher, but then Draghi added that some staff were working on a possible extension and he said the bank was unlikely to just end its program abruptly. So euro was hammered back to the lowest levels since the Brexit low.
6. Demographics is destiny they say, and Morgan Stanley says it is “under-appreciated” how devastating the world’s ageing population could be for the global economy. Maybe save this one for the afternoon because you might need an adult beverage when you read what Will Martin has here. Morgan Stanley says global economic growth as a whole could struggle as the population ages and the age dependency ratio (young folks to old folks) deteriorates.
If there is an upside it might be less variability in growth – upside and downside – but overall the world is going to need substantial improvements in productivity to keep us all in the manner we expect during our retirement.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Fortescue – solid numbers; nervous chart
Fortescue continued its recent tradition, producing a solid quarterly production report yesterday. Costs and debt are both declining. It continues to use the opportunity of higher than expected iron ore prices to improve its gearing which, at 33% ,is now only just outside the company’s 30% target.
This progressive set of numbers had little impact on the share price, leaving it inside a trading range that’s been established for a month now. The current loss of momentum as the chart drifts towards trend line support is worth keeping an eye on. A clear break below support and the trend line might set up for a downward correction.
The current loss of momentum makes sense from a risk: reward point of view. Probably the best investors can hope for in the near future is a steady to moderately higher iron ore price. However, the downside risk could be larger if, as many expect, supply increases into next year.
Ric Spooner, chief market analyst, CMC Markets. You can follow Ric on Twitter @ricspooner_CMC