6 things Australian traders will be talking about this morning

MELBOURNE, AUSTRALIA – MARCH 19: Daniil Kvyat of Russia drives the (26) Red Bull Racing Red Bull-TAG Heuer RB12 TAG Heuer waits in the Pitlane during qualifying for the Australian Formula One Grand Prix at Albert Park on March 19, 2016 in Melbourne, Australia. (Photo by Mark Thompson/Getty Images)

Now we wait. But not for long.

Stocks in the US were little changed at the close of trade as traders focus on the twin events of the Bank of Japan and FOMC decisions on monetary policy in the next 24 hours. The BoJ is due some time after lunch today while the Fed releases its decision at 4am.

Trade in the run up is likely to be fairly quiet today although the SPI 200 futures are suggesting a drop of around 9 points overnight.

On forex markets, the US dollar was mildly stronger across the board but the Australian dollar hung tough and is still around 0.7550. Oil is higher after OPEC chatter and a big draw in US inventories, gold is clinging to trendline support, copper is stable, and iron ore is a little higher.

Here’s the scoreboard (7.44am):

  • Dow: 18129 +9 (+0.05%)
  • S&P 500: 2139 0 (0%)
  • SPI 200 Futures (December): 5,281 -9 (-0.2%)
  • AUDUSD: 0.7551 +0.0016 (+0.21%)

The top stories

1. Here are the most important charts in the world right now from some of the best investors in history. The team at Business Insider in the US has done a ring around and asked some of the sharpest strategists, economists, and reporters for the one chart that’s at the top of their minds right now. Specifically, they wanted to see charts which reflect something that concerns them in markets and the economy right now.

Akin Oyedele and Skye Gould have the epic post here.

2. Here’s everything you need to know about the huge Fed decision tonight. The Fed isn’t expected to hike rates tonight by most pundits – except me and primary dealers Barclays and BNP Paribas. If they do, it will be a heck of a shock for markets initially.

Anyway, Akin Oyedele has a great guide of everything you need to know about the Fed’s big statement tonight.

Bond god Jeff Gundlach, the CEO of DoubleLine Capital, thinks the Federal Reserve will hold tonight.

3. Goldman Sachs has picked a side on the Fed’s contentious debate about whether wage rises will lead to inflation. Core inflation is running at 2.3% at present in the US but headline consumer prices are only up 1.1% over the past year. It means the debate about inflation is a fraught one. The big question on many commentators’, and the Fed’s mind, is whether the recent uptick in wages is a precursor to inflation.

Bloomberg reports Goldman Sachs’ US economist Daan Struyven “finds evidence that rising US wages have preceded an uptick in core inflation since 1974, in stark contrast to the body of academic work which has tended to conclude that price inflation leads wage inflation”.

Which leads Struyven to note: “In addition to our expectation that tighter labor and product markets will boost inflation, the fading of any remaining disinflationary effects from oil and the dollar, and the normalization of PCE health care inflation should also move core PCE inflation gradually higher.”

4. Earlier this week we heard that only a recession can knock US stocks lower and now Deutsche Bank says “all of our recession indicators are flashing red right now”. I’m guessing the folks at Deutsche Bank’s European equity strategy team aren’t expecting the Fed to hike rates tonight. That’s after they published a big note on Tuesday examining the risks of a US recession.

They say their warning signs are flashing red but also highlight that they “agree with our economist’s projection of a 30% recession probability over the coming 12 months”. Put another way though, there is a 70% chance of no recession in the next 12 months.

So maybe we don’t need to sell out stocks after all. Not yet anyway.

5. The European banking troubles are kicking off again – and it’s not just Italy. The night before last, Italian prime minister Matteo Renzi suggested Bundesbank president Jens Weidmann get his nose out of Italian banking and focus on his own backyard. That comes after trouble raised its head again for Deutsche Bank with the US Department of Justice fine.

But the fulcrum remains the Italian banking system with BMI Research saying Italy is a “systemic risk” and could become investors’ new obsession.

But as this chart of the Deutsche Bank and Monte Paschi share price shows it’s more than just Italy. Renzi might have a point.

Source: Reuters Eikon

But Citi Analysts say euro banks might be a huge contrarian trade. Will Martin has more here.

6. ICYMI – The RBA explained why borrower households are more important than saver households when it comes to setting monetary policy in Australia. I wrote this up after I read the minutes to the September board meeting yesterday. The discussion the board had around why rates are still effective even at these low levels was a startling revelation, I thought, and one that suggests they still see the efficacy of monetary policy even with the cash rate at the all-time low.

Perhaps it was to book end Glenn Stevens’ tenure after he once famously said he understood the pain savers go through. Or perhaps it was to give new governor cover after he said a year or so back that monetary policy might run into an efficacy problem around 1.25%.

Either way, I’ve got more here.

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)
AU: ANZ RM cons. conf. index: 115.5 vs. 118.1 exp.
AU: House price index, q/q, %, Q2: 2.0 vs. 2.8 exp.
US: Housing starts, m/m, %, Aug: -5.8 vs. -1.7 exp.
US: Building permits, m/m, %, Aug: -0.4 vs. 1.8 exp.
NZ: GDT dairy auction, % chg from last event: 1.7

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

TPG Telecom (TPM: ASX)

In what promises to be a quiet morning in the lead up to the BOJ decision, the question of whether yesterday’s heavy selling in TPG will continue is likely to be a market focus.

The sell-off was triggered by yesterday’s profit result and guidance for next year which was below expectations. Fixed line broadband is now emerging as an industry where there is considerable risk due to the roll out of the NBN which promises increased costs and capital expenditure requirements. TPG went into this profit announcement trading on a multiple of 24 times forward earnings, a market darling valuation that may not be justified by the potential risk and earnings uncertainty.

Yesterday’s sell-off broke an established trend line but hit potential support of the trading range from the middle of last year and the 50% retracement of the latest 5 swing advance. However, downward momentum is high and it’s difficult to be confident that yesterday’s selling will not be extended in coming days.

The next feature on the chart may be the bottom end of the June 2015 lows plus the 38.2% Fibonacci retracement of the whole rally from $1.20. This is around $8.45.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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