Good morning! US stocks had their 30th consecutive day of trading without a move of 1% in either direction, though the action was up and down through the session. SPI futures for the Australian market are flat. Here’s the scoreboard:
- Dow: 18,530.31, -22.26, (-0.12%)
- S&P 500: 2,182.68, -1.19, (-0.05%)
- Nasdaq: 5,244.60, +6.22, (0.12%)
- WTI crude oil: $47.42, -$1.71 (-3.44%)
- SPI ASX futures: 5,495.5, +1.0, (+0.02%)
- AUD/USD: 0.7636, +0.0016 (+0.21%)
The top stories
1. It’s dead quiet. The continuing absence of volatility is across asset classes, with a few exceptions in currencies, will really be a big talking point on trading floors right now. 30 straight days of moves smaller than 1% in US stocks is the kind of thing that worries traders, and not only because it squeezes their revenue lines. It’s also because they know that when the moves finally do come, they tend to be bigger and more violent.
2. Oil doesn’t seem to matter to stocks any more. The big move on global markets overnight was crude, with WTI falling more than 3% but the US bourses shrugged it off. This continues a trend seen from around last July when the correlation between stocks and oil broke down, according to HSBC Global Equity Strategist Ben Laidler, who shows it neatly in this chart:
There’s more here.
3. Fiscal stimulus is back on the agenda. Some economists and commentators have been talking about the need for government spending to try and re-ignite global growth for several years, especially as central banks’ experiments with unorthodox monetary policy have started to run their course. But now this view is starting to take hold on Wall Street. BAML has some research out to clients which notes that support for fiscal easing is growing. From the note:
In the immediate aftermath of the Global Financial Crisis, a number of economies aggressively eased both monetary and fiscal policy. But within a relatively short period of time, that stimulus was replaced by fiscal austerity as governments over-estimated how quickly growth would rebound, fretted about growing debt levels, and passed the buck to central bankers. Conventional wisdom within mainstream economics viewed monetary policy as the primary tool for stabilizing an economy after a recession; fiscal policy was judged a less desirable and less effective alternative.
The recent re-emergence of support for fiscal easing has occurred in two stages. The first was the fading appeal of austerity as recoveries meandered, interest rates continued to fall, and voting populations grew weary of continued belt-tightening. Boosts to consumer and business confidence from focusing tight fiscal policy on reducing debt levels — derided by critics as “confidence fairy” stories — simply failed to materialise. A key turning point was the IMF’s admission in 2013 that it had dramatically underestimated the damage to growth caused by fiscal austerity. That analysis undercut a key argument in favour of austerity, as tight fiscal policy often reduced the denominator of the debt/GDP ratio even more than the numerator.
Forget Nick Xenophon’s wild foray into an abandonment of inflation targeting by the RBA. This is likely to get people thinking in Australia and it will be interesting to see where it goes given that deficit reduction has been a pillar of economic policy for both major parties. Of course this has much more relevance to Europe, where growth has been incredibly hard to come by following all those years of austerity. Myles Udland has more here.
4. Capex really is that bad. From Macquarie:
Australia’s economy might be changing and moving away from all capex-intensive industries like manufacturing and mining, and all the money that was spent through the mining boom is holding up Australia’s greatly-expanded export capacity today. But this is still an astonishing chart.
5. The weakness in the Australian dollar won’t be here for a while yet. Major banks are pushing out the timelines for the Aussie to make a big move, with stronger for longer being the new theme. At US76-77c, it’s no doubt a little higher than the RBA and many businesses would like. The catalyst for a big move appears to be some way off, though. Here’s NAB’s take, and that from ANZ.
6. Remember Italy’s problems with its banks that the prime minister needs to solve through an upcoming election? Nobel prize-winning economist Joseph Stiglitz thinks this may be the political cataclysm that could really tear Europe apart. Stiglitz made this prediction in an interview with Business Insider:
I think the most likely thing is something along the lines of a political cataclysmic event like Brexit. In other words, the eurozone’s member countries are democracies and one sees increasing hostility to the euro, which is unfortunately spilling over to a broader hostility to the broader European project and liberal values.
That’s going to be the end. What’s going to happen is that there will be a definite consensus that Europe is not working. The diagnosis will be to shed the currency and keep the rest, or that Europe is not working and a broader rejection — like in the UK.
There’s more from the interview here.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Fortescue Metals (FMG: ASX)
As had been widely anticipated after its last production report, Fortescue unveiled a fantastic profit and progress report for shareholders yesterday.
The centrepiece was a 12c dividend. Operational excellence is forecast to continue next year, with the company confirming shipping guidance of 165-170m tonnes of iron ore and a C1 (basic mining) cost in the range of $US 12-13.
From here, Fortescue’s share price is likely to be all about the iron ore price. There are risks associated with that given planned production increases by Roy Hill and Brazil’s Vale.
Yesterday’s price action produced a fascinating situation for chart followers. The stock opened 2.4% higher but weakened and closed down 2.4%. In doing so, it peaked exactly at two AB=CD levels as outlined on the chart below. Here the second CD swing is the same size as the AB swing. These levels are often turning points for trends.
If the Fortescue chart does start making lower highs and lower lows from here, it could be in for a trend correction. That might bring the trend line support and 38.2% Fibonacci retracement level around $4.20 into play.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC