US stocks ended a good week lower on Friday with a mixed session that was initially influenced by weakness in European stock markets before a recovery that left the market little changed.
That hasn’t given the local market much of a lead for the day today, with the March SPI 200 flat at 4,919 when it closed on Saturday morning.
Earnings reports individually will be important today and this week, with a particular interest in BHP tomorrow. Given iron ore continued its good run Friday, FMG and others might have a good day.
Elsewhere the big news is the pasting that the pound is taking this morning as traders fret about Britain leaving the EU – Brexit. It hasn’t hurt the Aussie though. It’s still around 0.7150.
The yen is much stronger though which makes this week’s G20 meeting interesting and complicates the outlook for yen crosses and the Nikkei stock index.
Crude is back below $30 a barrel and gold is at $1,228.
And the big economic news Friday – US inflation is back. At least, the core number which abstracts the volatile food and energy parts of the basket of goods.
Here’s the scoreboard (7.35am):
- Dow: 16,391, -21 (-0.13%)
- S&P 500: 1,917, 0 (Flat)
- SPI200 Futures (March): 4,919, -1 (-0.0%)
- AUDUSD: 0.7150, 0.0000 (0.0%)
And the top stories:
1. If you thought Grexit was an issue, here comes Brexit as the UK announces its EU referendum. The pound is getting hammered this morning as fears it will leave the EU grow. Conventional wisdom is that UK voters will decide to stay with the EU when they vote on June 23. But forex traders are tapping a vein of thought that says there are lessons to be learnt from recent Portuguese elections together with Donald Trump’s ascendancy in the Republican US presidential campaign and the unexpected strength of Bernie Sanders’ Democrat campaign. That is, volatility isn’t just markets in 2016 – the electorate is stirring as well. That means there’s a big risk conventional wisdom, and markets, might be under-pricing the chance of Britain leaving the EU.
And of course, then there’s Boris, who is now backing Brexit.
2. Have global stocks made a bottom? A week back, Thursday stocks made what looked like a solid bottom for a run higher. It was one of those “double bottoms” chartists like. But the rally stalled last week when the S&P 500 and other markets ran into the sellers. So even though stocks on the ASX were up nearly 4% last week, the Dow and S&P 500 were more than 2.5% higher, the FTSE in London rose more than 3% and in Germany, the DAX’s rally was closer to 4%, the jury is still out on the sustainability.
The good news is the chart pattern on the bellwether S&P 500 is a “W” and Marc Chandler, my favourite strategist on the planet, says if 1950 breaks then we are off to the races. There is more in my diary for the week ahead. Key here is the ASX will go along for the ride I reckon – assuming 1950 breaks.
3. On the other hand, could we really be setting up for a 1929-style crash? This guys thinks so. John Hussman is known as an uber bear. But he’s much more than that. When you read his stuff over the years you simply get a sense of a money manager who understands valuation when it gets stretched. He’s been warning about the current markets for a while now. And in the past 6-9 months he’s started to be right. Or at least prices are reacting to the over-valuation he’s identified.
But Henry Blodget reports that Hussman, who correctly called the market crashes of 2000 and 2007, says the chances are growing that stock market is about to go over a cliff in an analogue similar to 1929 or 1987. You can read more here – if you dare.
4. And here is why stocks might come under pressure later this year – the Fed. As noted above, US inflation – ex the volatile stuff like food and energy – is on the climb. That means the Fed might be right and everybody calling for it to admit defeat is wrong, Myles Udland reports.
Udland says “at the start of 2016 markets acted like the US economy was going into recession and that negative rates were all but inevitable. Then the data came in and this view was all wrong.” The battle continues but the data is winning at the moment. Watch out for the latest US GDP update later this week. Udland has more here.
The trouble, and why the Fed won’t hike in March, is that US consumers can’t save the world economy.
5. There is a G20 meeting in Shanghai this week – it could move markets. Ray Attrill, the NAB’s co-head of currency strategy globally say we can expect the G20 leaders to make some platitudes to the market but then ignore them when they get back home. That could be confusing and increase volatility. Something to watch – here’s Attrill:
While we might hope for some assurances from central bankers that they are not engaging in a race to the bottom on negative interest rates and that the Fed is not going to risk further upsetting febrile markets by pushing ahead with ‘gradual’ policy tightening anytime soon, risk is high that central bankers return to home shores and proceed on their (domestically driven) policy ways. The prospect of any meaningful commitment to fresh fiscal support by G20 nations to shore up global growth looks similarly slim, albeit the noises about ‘helicopter money’ being the next policy shoe to drop – Milton Friedman’s concept of fiscal handouts funded via the printing presses – are becoming a little louder.
6. It’s another big week ahead for markets. Japanese CPI, US GDP growth, Australian private new capital investment – business investment intentions – and other partial indicators of next week’s GDP release are all out. Add into the mix the US CPI data last Friday which reignited discussions about the Fed and it’s fair to say it’s another big week ahead. Here’s my diary of all the key events and data for the week.
Have a great day. You can catch me on Twitter.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Fairfax Media (FXJ: ASX)
Fairfax’s transition from print to digital is a work in progress reflected in Friday’s profit result. The Domain real estate portal was the star of the show. Its underlying earnings were up 46%. Over 2015, Domain halved the gap in number of visits with its larger competitor, Realestate.com.au.
The relatively new streaming service, Stan, which is a joint venture with Nine Entertainment, also looks to be off to a decent start. It’s closing on 400,000 active subscribers.
As usual, all this progress was offset by ongoing declines in print revenue. The net result was an overall drop of 2.2% in underlying net profit.
Fairfax is trading at around 12.5 times forward earnings. For some it’s a matter of how this compares to pure play online advertising portals like Carsales.com.au which is valued at 25 times forward earnings.
Fairfax’s weekly chart is in a downtrend but has hit the top of a potential support zone. There’s also a potentially bearish Elliot Wave scenario for this chart which is worth keeping an eye on. That involves the classic ABC D correction after a 5 wave advance. A text book result could see this bottom out around the 61.8% Fibonacci retracement level at 65c. A breach of the support at 73c would bring this scenario right into play
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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