It’s been merger Monday in the US as companies announce the impending nuptials of a wide range of firms, with the AT&T/Time Warner tie up as the headline.
That helped stocks in the US pop half a per cent for the S&P 500 and 1% for the Nasdaq.
But that ebullience has been lost on local futures traders with the December SPI 200 contract up just 3 points after yesterday’s fall.
Elsewhere the Aussie had a run to 0.7640 but is back near 76 cents this morning, oil is off a little but back from its lows as markets digest competing comments from the Iraqis, Russians and the Iranians. Gold is a little lower and iron ore is higher.
Here’s the scoreboard (7.34am):
- Dow: 18223 +77 (+0.43%)
- S&P 500: 2151 +10 (+0.47%)
- SPI 200 Futures (December): 5,395 +3 (+0.1%)
- AUDUSD: 0.7605 0.0000 (0.0%)
The top stories
1. Here’s another sign Australia’s banking regulator is really worried about Australian housing. Recently we highlighted a UBS survey which showed that more than a quarter of home owners since 2014 lied on their mortgage application. That’s something that APRA is clearly worried about and it seems be concerned banks are taking on more risk than they believe because they don’t know as much about their borrowers as they should.
APRA wants residential lenders to ask harder questions and extract more real data on what borrowers’ actual incomes and expenses look like. They are also looking to toughen requirements for interest only loans and property in SMSFs.
As the housing and credit cycle tops, and as mortgage arrears start to rise in Australia, it’s prudent for APRA to ask these questions. And clearly APRA is worried about buyers being less than candid about their commitments when they take out a new loan.
2. US stocks were buoyant in what was a massive merger Monday. I’m not sure if this is a sign of a market top or an indication that the era of share buybacks is dead and companies are outward looking again as they search for growth.
Time will tell. But Portia Crowe has a great wrap of the AT&T/Time Warner, Rockwell Collins/BE Aerospace, TD Ameritrade/Scottrade, and American Midstream/JP Energy deals which have traders so excited in the US.
Unfortunately the local market is lagging with the SPI 200 up just 1 point, indicating a weak lead after yesterday’s 21-point fall.
3. Volatility is low but Mohamed El-Erian says there are two election scenarios which will make markets go haywire. Jonathan Garber sat down with El-Erian for a chat about how he sees things for the Fed after the election and so on. The key takeaway is that El-Erian said on the election:
The greatest impact would come from the materialization, as unlikely as this currently is, of one of the two tails – a clean sweep, with Democrats gaining control of both houses of Congress and of the White House; or, at the other end, Donald Trump winning the presidency and immediately moving to impose punishing trade tariffs on China and Mexico.
That would give us a Brexit like outcome but “apart from these two extremes, markets should be able to take the results of the election in stride”, El-Erian said.
4. Raoul Pal agrees – volatility is way too low in the run-up to the election. I could not agree more with Pal when he says “I always have an expression, which is suppressed volatility leads to hyper volatility”. Regular readers will know that is something I bang on about with my constant references to Minsky and Mandlebrot.
Pal adds: “Once you suppress things this much, whether it’s central banks or whatever is suppressing it, the moment the lid is taken off, the genie comes out of the bottle, the volatility explodes.”
5. Linette Lopez has a great chat with the Reformed Broker, Josh Brown, who is now CEO of Ritholtz Wealth Management. One of the things they talked about was his clients being “brainwashed” by fears of Fed hikes and duration in their bond portfolios, and another trap that investors have fallen into – things like eschewing emerging markets which are “crushing US stocks”.
He also explains his “I give up” vote in the election on November 8.
6. Here’s another sign the Fed is on track to tighten in December. James Bullard – the biggest dove at the Fed – said last night one rate hike is coming, but that would be enough. Whether more will follow is open to debate but if Bullard says a rate hike is coming then you can probably take that to the bank.
That’s particularly the case after Markit’s flash manufacturing purchasing manager’s index for October beat expectations, at 53.2 last night. That’s a 12-month high.
“Both output and new orders are rising at the fastest rates for a year amid increasingly widespread optimism that demand will pick up again after the presidential election, which has been commonly cited as a key factor that has subdued spending and investment in recent months,” said Chris Williamson, chief business economist at IHS Markit, in the data release.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Cochlear a victim of private hospital sell off.
Ramsey Healthcare and Healthscope remained under pressure yesterday after Healthscope announced disappointing hospital admissions during the last quarter. Selling pressure has flowed through to highly valued health stocks outside the private hospital sector. Cochlear and CSL have both had a rough couple of days.
Hearing implant manufacturer, Cochlear broke below the support of a double top chart pattern yesterday which looks potentially bearish.
A standard way of identifying targets for double top patterns is to project the height of the pattern from the point that support is broken. This is $119.95 and currently picks up the 200 day moving average. The 38.2% Fibonacci retracement is not far below at $118.40. This sets up a zone of potential support between $118.50and $120.
There are also less significant projections and minor support around $124.50 that may come into play.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC