Stocks in the US and Europe were down a little overnight which may take some lustre off what has been a cracking rally on the ASX 200 this week.
The March SPI futures contract is down 8 points this morning suggesting a mildly weaker start. But with a new high for the year, the buyers might keep on pushing.
On forex markets it was fairly quiet although the Aussie and its commodity cousins remain under a mild bit of pressure even though the yen and euro gained a little ground last night.
Commodities were mixed to down when it comes to industrial metals, although gold is trying to lift itself off the mat and is at $1131 this morning.
Here’s the scoreboard (7.57am AEDT):
- Dow: 19952 -23 (-0.1%)
- S&P 500: 2267 -4 (10.2%)
- SPI 200 Futures (March): 5,571 -7 (-0.1%)
- AUDUSD: 0.7247 +0.0009 (-0.12%)
The top stories
1. Australian stocks are still ripping higher. For the third day the Australian market had a corker yesterday, setting a new closing high for the year. It was also the highest close in 16 months.
What’s remarkable though – and something I was discussing with Paul Colgan, David Scutt and James Whelan last night, is just how long ago Australian stocks’ all-time high was. I don’t fully understand why the 200 index is still 1200 points below that high when other markets have recovered much more strongly. But it’s interesting when you see it graphically.
Equally interesting is going to be next year’s test of 5800 if it comes. That’s the trendline from the highs I’m sure the chartists will be watching.
2. But here’s a warning bell. Here’s another sign that even with the positives that look likely to accrue to the US economy and companies if Donald Trump implements his policy platform, a level of complacency might be kicking in. Bob Bryan reports that stocks haven’t been this boring since 1992.
That is, the folks at Bespoke Investment say the trading range for the S&P 500 hasn’t been this tight for a day of trading in nearly 24 years.
Associated with this lack of volatility we have the CBOE VIX measure at the lowest point since 2015. Which is something history, and Mandlebrot, suggests won’t last.
3. The Italian banking crisis is here – but nobody seems to care. It’s possible to build a tolerance to pain, caffeine, chilli and alcohol. And it seems we can now add Italian banking crisis to that list after Monte Paschi di Siena – the world’s oldest bank – warned it could run out of cash by April. Shares in the bank crashed but there were no reverberations across the Italian stock market, let alone the globe.
Perhaps it is because even Bundesbank president Jens Weidmann suggested recently that Italian government money would be needed to bail out the bank. Equally it could be because the government is actually getting the cash ready.
Clearly, the market’s tolerance for Italian banking crises has risen. Or is it the complacency I’ve noted above?
4. Goldman Sachs thinks that Fed chair Yellen and the FOMC are going to spoil Donald Trump’s economic party. The US dollar’s surge and the selling on US rates markets last week after the FOMC meeting was a clear signal that traders weren’t expecting the slightly more hawkish Fed and its guesstimate of 3 rate hikes in 2017.
But Bob Bryan reports that Charles Himmelberg and James Weldon, analysts at Goldman Sachs, argue the Fed chair is even more wary of the reflationary impacts of Trumponomics than the market currently factors.
“The growth outlook will soon be capped by the growth rate of potential GDP (if it has not already exceeded it), following which the main consequences of fiscal stimulus are likely to be a combination of higher inflation and higher real rates, with the precise mix to be determined by how hard the Fed decides to lean against the fiscal winds,” wrote Himmelberg and Weldon.
Yep, hard to disagree.
5. The rise and fall of China’s currency. This is a quintessential Business Insider post from Elena Holodny looking at the moves in the Chinese yuan this century. The annotated chart from Goldman Sachs is brilliant. Something to read now and file away for context later.
6. ICYMI – Here’s the burning issue I want everyone to understand about the economy and markets. Behavioural economics and finance is for me the holy grail in understanding the economy and markets. What drives them and how they will react to certain stimuli.
I made it the topic of my last big article at Business Insider because I think it’s so important and because it will drive better outcomes. You can read more here.
6a. Speaking of final columns. This is my final piece for Business Insider as a staff writer. I was a reader of BI before I was a writer so it has been a privilege to write for the site over the last 3 and a bit years.
It’s been fun to write for you all, to work with a great team – both here in Australia and increasingly across the known world – and I have learned lots.
So thanks to everyone and all the best. From me and mine, to you and yours, have a great Christmas and holiday season. And may the road rise up to meet you in 2017 and beyond.
From Ric Spooner at CMC Markets, here’s today’s Stock to Watch
Yesterday was a relief for A2 Milk shareholders. The company issued a statement providing comfort that its sales have not been swept up in the issues impacting Bellamy’s.
A2 confirmed that it continues to trade very strongly and in line with the trends communicated at its recent AGM. It noted strong sales growth and strong cash flow.
Reading between the lines of Bellamy’s update yesterday, it would not surprise if we eventually learn that it’s been caught with a big build up in inventory following disappointing infant formula sales to China. This may what’s forced it back to its suppliers to re- negotiate terms, including volumes.
A2 Milk’s statement yesterday stressed that it paid close attention to inventory management. The stock closed 6% higher but it’s still 10% below where it was when Bellamy’s went into a trading halt.
Ric Spooner is chief market analyst at CMC Markets. You can follow Ric on Twitter: @ricspooner_CMC