6 things Australian traders will be talking about this morning

The Summer and Olympic doldrums continued in stocks on Friday with muted falls in the US and Europe giving the local market a slightly negative lead for the open this morning.

September SPI futures are down 6 points after Friday’s 19 point rally. But the sectoral breakup on the S&P 500 which saw energy and materials up 2% and 1.3% respectively could be a good sign for the local market.

Elsewhere the US dollar fought back knocking the Aussie dollar, euro, pound and gold all lower. But crude kept rallying.

Here’s the scoreboard (6.24am):

  • Dow: 18552 -45 (-0.24%)
  • S&P 500: 2184 -3 (-0.06%)
  • SPI 200 Futures (September): 5,490, -6 (-0.1%)
  • AUDUSD: 0.7601 -0.0081 (-1.05%%)

The top stories

1. It’s another big week for local earning reports on the ASX. The ASX 200 has been trading sideways recently. But that doesn’t mean nothing has been going on. That’s certainly the case at an individual stock level as traders and investors adjust to the new information company reporting season has offered.

And it could be a show-stopper ahead with Matthew Felsmen from APP Securities saying it could be another bumper week. Felsmen says:

“Heavyweights to report profit results this week include Fortescue Metals, Oilsearch, Vocus, Wesfarmers and Woolworths. Of the stocks covered by the 8 major Australian brokers, 135 results are due out this week. 100 have reported so far, with 36 beating forecasts and 25 missing, 19 stocks have been upgraded and 38 downgraded. As we have been saying, it only takes an ‘ok’ result with a steady guidance outlook to excite, [and] this is due to a fairly pessimistic view to earnings leading in, and lots of money on the sidelines needing a home.”

2. Now that the Olympics are finishing, traders might start to focus on fundamentals again – that might be dangerous. September is a seasonally weak period for stocks and with the market having both sustained an almost infinitesimal daily range for the past six weeks and with the Olympic distraction now ended, plenty of folks are now thinking that it might be time for the pullback they’ve been waiting for.

Akin Oyedele reports one of those worriers is UBS chief equity strategist Julian Emanuel. What’s particularly interesting about Emanuel is that he says the weakness could come even though there is still plenty of expectation that money on the sidelines or in bonds is or will flow into the stock markets.

“While a number of bull market peaks (2000 in particular) have been accompanied by enthusiastic public buying, such exuberance catalyzed by a rotation away from cash and bonds seems unlikely in 2016,” Emanuel wrote.

3. Everything in markets is broken! That’s the view of Citi’s head of global credit strategy Matt King who outlined seven reasons markets are “deeply dysfunctional”. But Myles Udland reckons that if you break it down, this seven-pronged dysfunction in markets really just comes down to monetary policy.

It’s just another example of how the world is turning against the policies being pursued by central banks at the moment. But Myles notes King’s forecast is for more dysfunction and more bull-headedness from central banks that think pumping markets with easy credit and low interest rates is not a great environment to make money.

4. And while central bankers investigate their navels, BlackRock’s Rick Reider says inflation has a “tailwind”. Reider says even if US non-farm payrolls in the US start to slow, “job gains have greatly outpaced total labor force growth over the past several years. As a result, there are numerous signs that firming wages are on the way, if not here already”.

That means “stronger wage growth has supported core inflation lately. Looking forward, this trend is likely to continue, as finding qualified applicants for job vacancies becomes tougher in a tighter labor market”.

It also biases the Fed toward raising rates again this year, and next.

5. It might finally be happening. The ham-fisted notion of markets’ primacy is dying, says Nobel laureate Joe Stiglitz. Will Martin reports Stiglitz argues one of the central tenets of neoliberal ideology — the idea that markets function best when left alone, and that an unregulated market is the best way to increase economic growth, which will ultimately benefit everyone — has now been pretty much disproved.

“We’ve gone from a neoliberal euphoria that ‘markets work well almost all the time’ and all we need to do is keep governments on course, to ‘markets don’t work’ and the debate is now about how we get governments to function in ways that can alleviate this.”

Of course that also implies governments need to do more, and get more involved, which leaves us in a bit of a vacuum until that happens.

6. Oil is up strongly again, closing in on $50 a barrel in WTI terms. But Capital Economics says the rally won’t end well. Akin Oyedele reports Thomas Pugh, commodities economist at Capital Economics, says the rally on the back of hope of a production freeze will prove ephemeral.

“We think that prices will fall back over the next few months as the outcome of next month’s unofficial meeting underwhelms market expectations,” Pugh wrote.

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)
NZ: Net migration, s.a., Jul: 5600 vs. 5670 prev.
CA: retail sales, m/m, %, Jun: -0.1 vs. 0.5 exp.
CA: CPI, y/y, %, Jul: 1.3 vs. 1.4 exp

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

Medibank Private (MPL: ASX)

Medibank delivered a 46% increase in profits but its share price was a casualty. It closed down 5% on Friday and may not yet be out of convalescence.

The share price fell on news that Medibank’s customer base had declined 2.5% and it has lost market share. Higher costs are seeing more people drop private health insurance and leading to increased churn between insurance providers.

Friday’s outlook statement noted that these conditions are likely to continue into 2017 and this year’s strategic approach will include greater focus on the customer. This may well signal price more price competition.

From a chart point of view, Friday’s gap lower suggests the current downward correction may have further to play out. Possibilities might include the AB=CD harmonic swing level around $2.63 or the 61.8% Fibonacci retracement and previous major peak around $2.55.

You can follow Ric on Twitter @ricspooner_CMC

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