6 things Australian traders will be talking about this morning

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29 days. That the stretch the S&P 500 is on for trading a less than 1% daily range.

That hasn’t stopped the market making, and essentially holding, fresh all-time highs. But it does suggest, maybe, a big move in the offing down the track – the rubber band is getting wound tight.

But last night was not the night and US stocks rose mildly.

SPI futures traders think today could be a better day after yesterday’s falls with the September futures contract up 15 points overnight. But it’s another day of big company earnings results.

Elsewhere the US dollar is under pressure, UK retail sales were really good, the Aussie dollar is near 77 cents, gold is up and oil continues to rocket.

Here’s the scoreboard (7.42am):

  • Dow: 18597 +24 (+0.13%)
  • S&P 500: 2187 +5 (+0.22%)
  • SPI 200 Futures (September): 5,491, +15 (+0.3%)
  • AUDUSD: 0.7682 +0.0030 (+0.39%)

The top stories

1. ASIC’s battle with the banks over BBSW has just gone global. Australian banks might be under pressure when the market opens today with a couple of new headwinds for Australia’s major banks, and Macquarie, seem to have emerged yesterday. ASIC’s pursuit of the majors appears to have awoken a couple of US hedge funds and a derivatives trader’s interest. As a result, the banks who are part of the panel which sets rates for BBSW, including the 5 Australian banks and a number of international institutions, are being sued in the US district court with the allegation they generated “hundreds of millions of dollars in illicit profits by artificially fixing BBSW-based derivatives prices at levels that benefited their trading books”.

The NAB said in a statement to the ASX it “does not agree with the claims by ASIC in relation to BBSW” while the ANZ again reiterated it rejects “allegations regarding bank trading and the bank bill swap rate (BBSW) made in a statement of claim by ASIC in March 2016 and is vigorously defending the legal action brought by ASIC”. Both banks are defending the US action.

If the banks lose in the US it could cost a fortune.

2. Moodys has added to the bank’s woes by putting them on negative outlook. After the recent reporting from Australia’s big four banks, credit ratings agency Moody’s has warned that the outlook for the majors is now negative.

Chris Pash reports that this manifests as a “more challenging operating environment for banks in Australia for the remainder of 2016 and beyond”. That is likely to weigh on profit growth and asset quality at the banks with Moody’s also worried about external shocks and the banks’ ability to handle them.

Moody’s is worried about high household debt, low wages growth and interest rates and exposure to tail-risks in the Australian housing market, which has been characterised over the recent past “by strong price appreciation and rising household debt”.

It could be an interesting day for the banks on the ASX today.

3. Bad news for Australia – the US dollar might be turning, lower. The Australian dollar keeps finding support on dips. A lot of that is the interest rate pick up to other countries and as Martin Whetton pointed out in his note to a recent trip to see Asian clients, it is also because of a lack of alternatives.

But the other side of the AUDUSD coin is the US dollar’s movements. It’s the other side of the AUDUSD rate, so it’s important.

Elena Holodny reports Tom Leveroni and Shourui Tian, from Nautilus Investment Research, say the US dollar has just broken a key level and could fall another 3 or 4%. That could take the Aussie dollar up toward 80 cents if Nautilus is correct. Ouch.

4. A physics lesson for central bankers. This is probably my favourite story for the week. One of the great failing of finance and economics was to pretend it was a science like physics and create models of the way the world, and finance, should work. Unlike the physical sciences though when these models, or the theories that underpin them, have increasingly been proven incorrect there has been a reluctance to revisit the theories.

But Mark Gilbert, writing at Bloomberg, says “The mismatch between economic theory and the real-world outcome of zero interest rates poses a direct challenge to the current orthodoxy that puts a 2 percent inflation target at the heart of monetary policy in most of the developed world”.

It’s a very good article and Gilbert says “just as scientists are forced to review their assumptions when the experimental evidence undermines existing theories, central bank economists should acknowledge that the world isn’t responding to their guidance in either the way they expected or how they would want it to. In short, a new approach to monetary policy is needed”.

5. Central Bank policy is one of the key topics we discussed in this week’s Devils and Details Podcast. I subbed in off the bench for David Scutt for this week’s episode where Paul and I had a great conversation with BetaShares chief economist David Bassanese. David was a columnist at the AFR for a decade and before that he was at BT and Macquarie.

So we had plenty to talk about including a discussion of what central bankers need to do. here’s a link so you can listen in.

6. Oil is ripping higher with brent crude back above $50 a barrel. On the way back to Port Stephens from Sydney last night I saw fuel on Pennant Hills Rd for $1.25 a litre along the stretch before the freeway. But I managed to last all the way to Williamtown airport where I paid 89.7 cents. I’m not sure I’ve got petrol that cheap this century.

But it might not last now that crude oil is back in a bull market. As Akin Oyedele noted in his wrap of the US action, WTI crude futures closed up 22% from the recent bottom on August 2, when they slipped below $40 per barrel. Oil has gained in every session since August 11 as reports of talks towards a production-freeze agreement among OPEC producers were revived.

89.7. Ever again?

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)
JP: Trade balance (¥Bn), Jul: 514 vs. 273 exp.
NZ: ANZ cons. confid. index, Aug: 117.7 vs. 118.2 prev.
AU: Employment change (‘000), Jul: 26.2 vs. 10.0 exp.
AU: Unemployment rate (%), Jul: 5.7 vs. 5.8 exp.
UK: Retail sales (m/m%), Jul: 1.4 vs. 0.1 exp.
US: Philadelphia Fed survey, Aug: 2.0 vs. 2.0 exp.

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

Treasury Wine Estates (TWE: ASX)

Once upon a time this business was a millstone around the neck of a beleaguered Fosters group. Now it’s a market darling and yesterday’s profit result justified this status. It beat expectations and produced a price rally of 11.5%.

The core of TWE’s strategy is a move up market with a greater emphasis on “masstige” brands. Execution of the strategy has so far been successful. Selling higher priced products is allowing TWE to drive revenues higher and increase profit margins. Gross profit margins improved 3% on a constant currency basis over the last year.

Patient buyers recently had a couple of opportunities to buy this stock around trend line support and close to its 200 day moving average. As things currently stand, the nearest chart support is now around $10. This sees recent highs and the bottom of the gap created by yesterday’s move.

However, price action over coming days and weeks might create a clearer picture of potential chart supports.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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