6 things Australian traders will be talking about this morning

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US and European stocks closed in positive territory on Friday night, ending what had been a week of gyrations with a positive lead for trade in Australia today.

The SPI 200 futures are only up marginally however, with a rise of just 3 points. Perhaps because of all the competing headwinds facing the local markets. Equally however, even with iron ore’s wild ride continuing and copper closing the week on its lows, today could be a better day as traders try to take the 200 index back above the trendline it broke last week.

On forex markets the Aussie is just above 72 cents and vulnerable still as the US dollar makes some headway.

Here’s the scoreboard (7.54am):

  • Dow: 17,500, +65 (+0.38%)
  • S&P 500: 2,052, +12 (+0.6%)
  • SPI200 Futures (June): 5,360, +3 (+0.1%)
  • AUDUSD: 0.7227, 0.0010 (+0.1%)

Now, the Top Stories

1. Hedge funds still love the widow maker trade and are shorting Australia’s banks. The Wall Street Journal released an interesting article on its site overnight. The story notes that offshore investors have been serial losers when it comes to shorting (selling) Australian banks. But it says: “Short positions on the four largest Australian lenders — Commonwealth Bank of Australia, Australia & New Zealand Banking Group Ltd., Westpac Banking Corp. and National Australia Bank Ltd. — have collectively soared 50% this year to more than 9 billion Australian dollars (US$6.49 billion), the highest level since regulators began compiling data six years ago.”

Our “gay couple” pretenders John Hempton and Jonathan Tepper get a rerun in the article – you’ll recall these two fellas pretended to be partners and reported they found some big holes in lending practices a couple of months back. These were similar to issues that have come to light with foreign loans recently, and on the ABC “4Corners” program suggesting there could be problems.

Certainly the banks could fall 10 or 20% in the normal course of things. That’s the rough range Westpac has traded through in the past year. But essentially shorting the banks is shorting the Australian economy, house prices, unemployment, income and so on. No wonder it’s called the widow maker.

2. RBA rates. Glenn Stevens has a golden opportunity to “clarify” the RBA’s current thinking should he so desire at an event in Sydney tomorrow. Stevens is making some “remarks” at the Trans-Tasman Business Circle boardroom briefing, in Sydney at 1.05pm Tuesday.

If he follows the lead of his predecessors Bernie Fraser and Ian Macfarlane, he is likely to be pouring cold water on the 1% cash rate calls. That could move stocks, interest rate futures, bonds and most certainly the Aussie dollar.

Perhaps the best guide to his, and the RBA’s thinking, were comments from outgoing RBA board member John Edwards who implied in an article with the WSJ that the RBA is in no rush to raise rates. Edwards reiterate the point Fraser and Macfarlane both made about the inflation target being a medium term one. “It has never been the view that the target had to be achieved each and every quarter, or for that matter each and every couple of quarters, or year,” he said.

3. Trust – it’s important for markets and it goes hand in hand with one of the scariest things in global finance. Goodwill. Without the inclusion of China and the other big emerging markets of the G20, the G7 doesn’t seem as relevant these days as it used to before the financial crisis. But as anachronistic as it may be, it is still an important meeting in the signals it send.

One of those signals I picked is a lack of goodwill – see below for the Japan/USA face off over the yen – about the economic outlook for the globe. It seems like the longer the global economy takes to heal, and the more uncertain the outlook, the less teamwork we are seeing. US Treasury secretary Jack Lew said “it’s not a one-size-fits all…When it comes to fiscal and monetary policies, we’re not in the same position.”

But, as Linette Lopez wrote over the weekend, the lack of trust runs deeper than that. She said Goldman Sach’s CEO Lloyd Blankfein accidentally put his finger on the issue of confidence and trust. Throw in the most forward thinking central banker on the planet, Andrew Haldane from the Bank of England, and HSBC economist Stephen King, and you have a must-read article which you can find here. Seriously take the time – it’s good, if not a little depressing.

4. On a related topic, here’s more on the truth bending going on in US companies’ reported earnings. And this is where the rubber hits the road and can cause markets, and traders, problems.

We talked about this topic last week so I’m just going to use Myles Upland’s chart and then refer you to his post here. In some ways, the S&P holding up in the face of this is remarkable, but it’s also a potential weak point to the rally.

5. Forex traders, G7 was a non-event except for one really big difference between the US and Japan over the yen. Also clear from the weekend’s G7 meeting in Japan is a rift opening up within the group over forex and specifically the yen.

US Treasury secretary Jack Lew had a clear disagreement with his Japanese counterpart Taro Aso. Lew said: “It’s important that the G7 has an agreement not only to refrain from competitive devaluations, but to communicate so that we don’t surprise each other and we have a clear understanding on what the potential consequences of actions might be…I’ve been clear in our analysis of current exchange rate movements. It’s a pretty high bar to have disorderly conditions.”

And Aso countered: “I understand to a certain degree that (the yen) may move up or down. However, looking at the past several weeks, the dollar has moved by 5 yen in two days or 8-9 yen in 10 days and we cannot clearly say such a move is orderly. From the U.S. standpoint, they may say the yen was at 70 yen or so until recently. That was natural for them. They are facing elections, we are facing elections too, and both have (the Trans Pacific Partnership). It is our job to make statements. We must prevent such differences of opinions from becoming emotionally complicated by exchanging opinions”.

Two things are clear – Japan has been warned off, and they are not happy about it.

And speaking of forex – traders are selling the Aussie and buying US dollars.

6. And of course it’s a huge week on local markets. RBA governor Glenn Stevens tomorrow, and then GDP particulars with the release of construction work done and CapEx.

Here’s my diary of the week ahead from an Australian perspective. And for those who want to be a little bit more intimate with what’s going on in the US, here’s Myles Udland’s excellent take on the week ahead from a US perspective.

Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Net migration (s.a.), Apr: 5520 vs. 5330 prev.
US: Existing home sales (mn), Apr: 5.45 vs 5.40 exp.
G7 meeting: No new initiatives to stimulate global growth

You can catch me on Twitter.

And, if you are interested in improving your trading and learning how I approach markets and trades, my strategies and processes, I’m holding a course in Sydney soon.

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

Woodside Petroleum (WPL: ASX)

Predictably, Woodside’s investor day on Friday reinforced the view that it’s not an investment for thrill seekers. It may however, turn out to be an opportunity for those with a medium term perspective and prepared to back the current management team’s conservative approach.

Woodside again indicated that it’s not looking to use its balance sheet for a “big bang” acquisition. Instead the focus will be on leveraging its strong financial position and low cost base, to grow through bolt on acquisitions; exploration and development of “emerging” fields with proven petroleum systems.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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