Stocks in Europe finished mildly lower but the run of wins in the US continued with the Dow and S&P 500 eking out small gains.
That was actually a pretty solid performance in the face of three Fed speakers who appeared to be stepping back from the dovish take markets had of last week’s FOMC decision.
Fed presidents Williams and Lockhart both said April could be in play for a rate hike and Jeffrey Lacker said he expects inflation to tick up with the oil price. That knocked US bond rates higher and gave a little bit of support to the US dollar which is back up near 112 against the yen, below 1.44 against the pound and at 1.1240 against the euro. The Aussie is sitting at 0.7580 unchanged from where it was for most of yesterday.
The washup has been that the ASX 200 will likely again try to push higher in trade today with the June SPI 200 contract up 11 points. But unless or until last week’s high of 5214 is taken out, traders are likely to remain very cautious.
Elswhere, Nymex crude is back above $40 after a dip in Asia yesterday and gold has dropped to $1243 as the stock rally continued.
Here’s the scoreboard (7.28am):
- Dow: 17,623, +22 (+0.12%)
- S&P 500: 2,051, +2 (+0.1%)
- SPI200 Futures (June): 5,178, +11 (+0.2%)
- AUDUSD: 0.7581, -0.0020 (-0.26%)
The top stories:
1. The impact of Australia’s political turmoil and threat of a double dissolution on the ASX, Aussie dollar and bonds. The prime minister’s surprise announcement yesterday that he would recall parliament for a debate on the ABCC and bring the Budget forward so he can pursue a double dissolution election if his bills aren’t passed was a surprise yesterday. It helped cap the ASX rally once again and weighed a little on the Aussie dollar.
But it is worth remembering that politics does not play much of a role in Australian markets these days. There’s a couple of reasons for that. The first is that the Reserve Bank has the respect of traders and global investors as a good steward no matter who is in charge and whatever the fractious nature of political discourse. The second is that traders and investors are simply used to the enduring fractious nature of political discourse.
So unless one, or both parties, announce policies which will drive up national debt, or undermine growth bonds, the Aussie dollar should only be marginally impacted by this long run to the next election.
But assuming, based on current numbers, that the bills don’t get passed, then we have already started a 103-day election campaign in the run up to a July 2 double D election. That’s not good for economic growth because the uncertainty usually sees business and consumers defer activity during the campaign. And that in turn can impact on the stock market. Which means the gap that is opening up between the performance of the ASX and the S&P may widen.
2. It’s turning into a stock picking world – so here’s a roadmap to picking stocks with future value. The easy money has been made. The QE rally is done and the growth and value expectations are already reflected in the prices of stocks around the world. That’s the message that Will Low and Iain Fulton from Nikko Asset Management gave me when I sat down with them last week to discuss how to find stock market investment opportunities in a low growth world.
They are stock pickers and have a concept they call “future quality” and currently it identifies companies as diverse as Facebook and Tyson Foods as possible winners. I’ve got more on how they identify opportunities here.
3. It’s the end of days for oil – but in a good way. The recovery in oil is the single most important factor in the recovery in risk sentiment and the lifting of the pall that overhung markets in early February. In recovering, oil had a multiplier effect on stocks because the move higher in prices reduced the threat of bankruptcies and in turn reduced pressure on banks which were exposed to the sector.
So it’s worth noting, as Akin Oyedele reports, that the oil crash is almost over. One thing I’d just highlight – not to be Chicken Little at all – is that the oil recovery puts upwards pressure on inflation. That’s something the Fed’s Lacker highlighted again overnight.
4. Central bankers are starting to admit they can’t save the economy on their own. There has been a lot of chat about the Shanghai G20 meeting recently as traders wonder about the apparent co-ordination of policy after the Fed took a roll of global, not just US, central bank last week. But one of the most important things the G20 communique actually said was (our emphasis), “monetary policies will continue to support economic activity and ensure price stability, consistent with central banks’ mandates, but monetary policy alone cannot lead to balanced growth“.
It was a reinforcement that there are limits to the power of central banks to revive the economy as rates hit, or head below, zero, and the economy remains stuck in the mire. It is a theme picked up last night by Benoit Coeure, a member of the ECB’s executive board. Will Martin reports that Coeure said the bank can’t “single-handedly create the conditions for a sustainable recovery in growth” and issued another call to governments in the eurozone to implement what he called “ambitious reforms” to their economies to help boost growth. Forexlive reports the Greek central bank governor made similar comments overnight.
Without fiscal spending to kick things along, the globe is going to continue to see the economy stuck in the mire.
5. Fed governors warned overnight April could be in play for a Fed rate hike. One of the best reasons the Fed backed off its bearish rate hike rhetoric this year was that US financial conditions had tightened so far on their own. But conditions are now looser than they were when the Fed tightened in December last year. So it’s not hard to see why maybe the US dollar has gone backwards a bit lately.
— Worth W. Wray (@WorthWray) March 21, 2016
But recognising this loosening of monetary conditions might also explain why overnight San Francisco Fed president John Williams and Atlanta Fed president Dennis Lockhart both said that the Fed is still live and April is a possibility for a rate hike. Separately, Richmond Fed president Lacker said he expected inflation to head “significantly higher” as oil stabilises.
Bonds sold off and the US dollar was a little stronger as a result.
6. China asked the Fed for its 1987 playbook when its stock market imploded last year. I have to say this is the most pleasing thing I have read in ages. I have hoped for a long time that our own Reserve Bank is somehow helping Chinese authorities with this difficult path of opening up their financial markets. That’s because what China is doing what Australia, and others nations, did 30 years or more ago.
So it was good news to read this morning David Scutt’s report that China’s central bank emailed the Fed for advice on how to stop its stock market from crashing. It’s an interesting read and it gives me a chance to highlight the point I made badly about the conspiracy theorists who say a secret deal was made at the G20 meeting in Shanghai recently.
It should be no surprise to anyone that central banks are cooperating.
And the overnight round-up of key data(courtesy BNZ Markets)
NZ: Westpac cons. confidence, Q1: 109.6 (110.7 exp)
NZ: Net migration, Feb: 6070 (6130 prev)
US: Existing home sales, Feb: 5.08m (5.31m exp)
Have a great day. You can catch me on Twitter.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Blackmores (BKL: ASX)
The Blackmores chart has established a key point of control around $155-$157. Initially resistance back in October, this level has acted as support on 4 occasions since. Over the past few days the share price has snuck up to test the resistance of its 50 day moving average. This acted as pretty reliable support during Blackmores long ascent from $34 to $22. This is the first time it has been tested as resistance for a long while.
The market appears to have been content with a period of consolidation for this stock, allowing earnings to catch up with the share price. It’s currently trading on around 30 times forward earnings. There are also some concerns about the risk of changes to the tax and product registration rules for cross border sales into China.
This $155 – $180 range now forms a reference framework for the development of the next new trend in Blackmores.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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