6 things Australian traders will be talking about this morning

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There is little to rejoice about today.

Unless you’re a trader who is short the pound, stocks and oil. All three markets came under pressure last night as fears of Brexit grow and the Saudis scotched any notion traders had that the production freeze might give way to a production cut.

Oil’s fall (-4.5%) then appeared to drag stocks lower again in Europe with the DAX in Frankfurt down 1.64%, the FTSE 1.25% lower and the CAC down 1.4%. A big disappointment on the German Ifo business survey didn’t help.

So with 20 minutes before the close the Dow, Nasdaq and S&P 500 are off around 1.0-1.3%. That has sent the SPI 200 futures down 37 points, 0.7%, suggesting another disappointing day ahead for the ASX after yesterday’s weaker than expected trade.

On forex markets the Aussie is a little lower but still above 72 cents, USDJPY is lower as the yen continues to find buyers, euro is back at 1.10 and the pound is just holding 1.40 – its lowest level in years.

Gold remains strong amid the market nervousness at $1,222 but copper dipped a little to $2.10.

Here’s the scoreboard (7.40am):

  • Dow: 16,455, -1.58 (-0.96%)
  • S&P 500: 1,921, -24 (-1.23%)
  • SPI200 Futures (March): 4,911, +36 (-0.7%)
  • AUDUSD: 0.7210, -0.0012 (-0.17%)

And the overnight data round-up (courtesy BNZ)
GE: GDP (q/q%), Q4 F: 0.3 vs. 0.3 exp.
GE: IFO business expectations, Feb: 98.8 vs. 101.6 exp.
US: S&P/CS 20 city HPI (y/y%), Dec: 5.7 vs. 5.8 exp.
US: Consumer confidence, Feb: 92.2 vs. 97.3 exp.
US: Richmond Fed manufact., Feb: -4 vs 2.0 exp.
US: Existing home sales (m), Jan: 5.47 vs. 5.33 exp.

Now the top stories:

1.The S&P just failed at important technical resistance – not a good sign for stocks. If you are a long term value investor like Warren Buffett, or a long-term fund manager with stewardship of a super or other type of investment fund, the slings and arrows of one or two days move don’t matter. But to millions of traders around the world these shorter term moves matter. To help navigate them they use technical analysis – the study of price charts. Think GPS for traders and markets.

These traders will have noticed that the global bellwether stock market moved into the breakout zone but, like the ASX200 yesterday, reversed lower again. One or two days moves is just noise in the grand scheme of things but unless the S&P can break higher, stocks – including the ASX – might drift lower again.

S&P 500 futures (MT4, AxiTrader)

2. Oil has tanked after the Saudis ruled out a production cut. A day after the OPEC secretary general appeared to suggest if the production cap gains traction, production cuts might follow, the Saudis appear to have ruled out a cut. The FT reports that oil minister Ali al-Naimi said a lack of trust between the world’s biggest producers meant a cut in production “is not going to happen”.

“There is less trust than normal,” Mr Naimi told energy executives in Houston. “Not many countries are going to deliver. Even if they say they will cut production, they will not deliver.”

Of course that doesn’t contradict what OPEC’s sec-gen said, just clarifies it. But oil is down 4.5% as a result and that’s dragged stocks and other risk assets lower. No doubt comments by the Iranian oil minister Bijan Zanganeh that a push for a freeze was laughable didn’t help.

3.This is the must read of the day for anyone interested in the global economy and markets. Martin Wolf is the doyen of global economics writers. In his latest missive, “Helicopter drops might not be far away” he discussed the slowing of global growth both structurally and cyclically, the exhaustion of central bank monetary policy, and what that means.

He says the issue is that slow growth is a result of “a simple reality”.

“The global savings glut — the tendency for desired savings to rise more than desired investment — is growing and so the ‘chronic demand deficiency syndrome’ is worsening.”

Traders may not benefit from what Wolf has to say today, tomorrow or even next month. But forewarned is forearmed.

4. Barclays researchers neatly summed up China’s problem with this chess reference – zugzwang. That’s the chess term that refers to a situation where taking your turn is a disadvantage and weakens your position. It’s a nice way to frame what China is facing, according to Barclay researchers who say:

This concept effectively explains the choices that confront China’s policy makers, who will have to make a decision about the country’s currency and monetary policy in the next few quarters. None of the choices are terribly appealing, and all carry risks for financial markets.

David Scutt has more here. And he also covered the opposite view yesterday. Richard Grace from the CBA says we should all stop worrying so much about China.

5. Here’s another sign the Fed won’t be raising rates at the March meeting. Dallas Fed president Robert Kaplan has clearly taken note of the turmoil in global markets, and perhaps a little of the slowing in partial indicators of US growth. In an interview with the FT, Kaplan has suggested patience from the Fed when it comes to the US tightening cycle.

“In order to reach our inflation objective we may need to be more patient than we previously might have thought,” he said. “If that means we take an extended period of time where we stop and don’t move, that may also be necessary. I am not prejudging that.”

A waiting Fed has implications for the US dollar and US interest rates and by extension, almost every asset on the planet.

6. The pound is getting hammered as traders fret about Brexit. My trading view since the 4th quarter last year when I started thinking about the trades for 2016 is the pound will traded back to the GFC lows around 1.35/1.37. Largely that was because I thought Mark Carney would delay rate hikes and Brexit would loom large as a reality. So it is against this backdrop that GBPUSD lost 0.9% overnight.

That’s all by way of background about what traders like me are thinking. But the big news, the scary one for markets, is if Brexit looks close or actually gets the Yes vote Boris Johnson is pushing, it would open Pandora’s box in Europe. Elena Holodny reports that a team of Barclays analysts thinks that folks are seriously underestimating the UK’s referendum vote on EU membership given that whatever the UK ultimately chooses could have serious consequences for the rest of Europe.

And here’s what worries the Bank of England most about Brexit — and it’s not the pound.

Brexit is a huge issue. At the moment only forex and bond traders seem worried. Expect concerns to go mainstream as we approach the June 23 referendum.

Have a great day. You can catch me on Twitter.

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

BHP

At the end of the day, there wasn’t much to surprise the market in yesterday’s profit result. The exception was probably the extent of the flexibility the Board now has to lower future dividends within the new policy.

BHP’s share price had run up in advance of the profit result. The market was clearly anticipating the positive impact a new dividend policy would have on BHP’s balance sheet and credit rating. A bounce in iron ore and oil prices also helped.

Meanwhile the share price has also been playing out of the chartists’ song book. A weaker US price last night suggests it’s going to peak neatly at trend channel resistance. As often happens, this also fits a couple of harmonic AB=CD patterns. If BHP does reject this resistance, potential buyers may get another opportunity to buy off the channel support.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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