Another day, another rally in US stocks sets up the potential for the third positive performance on the ASX today. Overnight the Dow flirted with 20,000 again but couldn’t quite get there. But the overall tone was positive.
That’s left the March SPI futures up 15 points after yesterday’s close on the physical market of 5591. That was below the high of the year but the highest close since August 2015.
On currency markets, the US dollar was stronger once again after the BoJ signaled it is going to keep policy accommodative. But the Aussie dollar was becalmed over the past day.
On metals markets, it was ugly in Asia yesterday but London trade recovered some of those losses. Gold is still struggling for relevance and oil is a little higher.
Here’s the scoreboard (8.02am AEDT):
- Dow: 19974 +91 (+0.46%)
- S&P 500: 2269 +7 (+0.29%)
- SPI 200 Futures (March): 5,565 +13 (+0.2%)
- AUDUSD: 0.7257 +0.0009 (+0.12%)
The top stories
1. Here’s a great way to explain why stocks are higher – say goodbye to irrational despondency. We had another unexpectedly good rally on the ASX yesterday, futures traders are pointing to another mildly positive day, while European and US stocks were also higher.
But there is a level of disquiet about the whole Trumponomics rally. I even wrote in the week after it started that it was stupid. But then I changed my mind and went all in, 100%, equities on my managed super when I recognised this might well be the very paradigm shift the global economy, and markets, needed.
Why I flipped was neatly summarised by one of the globe’s most well-regarded strategists on Bloomberg overnight. Joachim Fels, and economic adviser to PIMCO, said what we saw in 2016 “was the opposite of irrational exuberance”.
Rather, he said that “everyone was worshiping at the secular stagnation church”. We know that’s true because the BAML survey of big global investors showed cash holdings in October were at a 15-year high. But now folks, investors and traders are doing something different – they are focusing on what could go right.
After the last 8 years of a moribund economy globally, that feels uncomfortable. But it doesn’t mean it won’t happen. It won’t be a straight line either. But a positive outlook is a paradigm shift from the past few years.
2. Ray Dalio says “we are about to experience a profound, president-led ideological shift that will have a big impact on both the US and the world”. Racheal Levy has picked up on Ray Dalio’s latest post on LinkedIn. I think it is an important contribution to the conversation of what a Donald Trump presidency might actually look like and what the ideology he will push is.
Dailoi says the new administration hates weakness and “wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power. The shift from the past administration to this administration will probably be even more significant than the 1979-82 shift from the socialists to the capitalists in the UK, US, and Germany when Margaret Thatcher, Ronald Reagan, and Helmut Kohl came to power.”
A paradigm shift, in other words. Rachael has more here.
3. GOLDMAN SACHS: 4 key transitions we’re watching in 2017. This is good. Prashanth Perumal has a look at Goldman Sachs asset management’s outlook for the global economy and markets in 2017 and drawn out the key themes the firm is watching.
Those themes are globalism to populism, stagnation to inflation, monetary to fiscal policy, and regulation to de-regulation.
More potential paradigm shifts.
4. And speaking of shifts, the “great rotation from bonds to stocks is here” says Deutsche Bank’s Torsten Sløk. Akin Oyedele has more here, including this chart:
5. It’s not open borders but robots workers need to worry about. Here’s something interesting I picked up on Reuters this morning. Apparently the global average is 69 robots per 10,000 workers in the manufacturing industry. But in South Korea that number is 531, Japan 305, Germany 301, and in the Untied States it’s 176 per 10,000.
Naturally when you see numbers like those the Reuters story says, “campaign promises to bring back manufacturing jobs will soon prove hollow. That’s because the bogeyman is automation, not open borders.”
Yep. Cue the trailer to the Terminator.
6. Bespokeyness is the new black if you want to sell product. This is my second last 6 things so I wanted to throw this in as a bit of a thought piece for companies in this new economy we inhabit and with digital natives coming through. It’s a world of instant communication, instant response, and instant gratification. It’s also a world where consumers know what they want and will only buy what they want, not just what the company offers.
What else is Facebook and Snapchat but a self-curating window on the world?
Anyway, this all popped into my head reading Simon Thomsen’s story on Rolls Royce. Yes, Rolls Royce. Simon says the car maker has added a dark edge to its cars to appeal to younger owners. Even in a lower growth environment as we move toward a greater share of services in global GDP it seems embracing niches, and tailoring to customer needs, is going to be the only way companies can successfully and consistently grow faster than nominal growth.
From Ric Spooner at CMC Markets, here’s today’s Stock to Watch
In 2002, the Government gave Sydney Airport the first right of refusal on developing the second airport at Badgerys Creek. This was done to maximise the cash the government got for selling it. Fourteen years later, it’s trying to drive as hard a bargain as possible as it wrestles with the self-created problem of a lack of competition for development of this major project.
Sydney Airport’s shares fell 2% yesterday following release of the Government’s “Notice of Intention” on Badgerys Creek. There were some surprises, including t the fact that the government does not propose providing finance to support the development.
For Sydney Airport shareholders, it’s not a straight forward situation. There’s an obvious strategic benefit in avoiding competition and continuing as the monopoly provider of major airports in Sydney.
This needs to be weighed against changing the risk profile of the company by getting involved in a major, long term development project with substantial political risk.
The terms of the development agreement will clearly be crucial to the extent of this risk.
Ric Spooner is chief market analyst at CMC Markets. You can follow Ric on Twitter: @ricspooner_CMC
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