Stocks rallied and bond rates across the globe eased further as investors bet that low rates and monetary accommodation will continue for some time yet.
That sentiment drove the Nasdaq to a new all-time high and has left the SPI 200 futures pointing to a 27-point gain when the ASX 200 physical market opens at 10am.
On forex markets the Aussie is up just a little, as the US dollar recovered a little. Oil is higher as traders bet the chance of a deal at next week’s meeting is growing, gold is largely unchanged and iron ore is up again.
Here’s the scoreboard (7.49am):
- Dow: 18392 +99 (+0.54%)
- S&P 500: 2177 +14 (+0.65%)
- SPI 200 Futures (December): 5,381 27 (+0.5%)
- AUDUSD: 0.7642 +0.0013 (+0.17%)
The top stories
1. The Australian stock market looks set for another good day. Stock markets were high last night as traders bet the status quo will continue in the US and global markets for a few months at least yet. That’s been good news for commodities as well and the SPI 200 futures traders are betting on a 27-point gain at the open.
So the question posed yesterday about the local market closing the performance gap on the S&P 500 is worth asking again. Clearly, the ASX 200 has different constituent splits and different exposures to different parts of the economy in a more concentrated way. But each period of underperformance to the S&P this year has been remedied with a strong rally.
Will we see that again in coming weeks?
2. RBA governor Phil Lowe showed he plans to be a steady hand on the tiller in his first speech yesterday. Besides the headline grabbing notion that the RBA is not full of inflation nutters and a handout that was a pretty good defence of where bank margins are right now, new RBA governor Phil Lowe gave a clear indication that he is in the mould of of his predecessors Stevens, Macfarlane, and Fraser.
He did this by talking about the RBA’s flexibility when it comes to inflation and policy making. That’s important because the RBA has overseen Australia’s almost record-breaking economic run without a recession by using this flexibility to raise and lower rates as required. One other thing he noted was that Stevens only left him one thing in his new office – a mug with “Half Full” written on it. So he’s no doubt going to continue to be upbeat about the prospects for the Australian economy.
3. Here’s why podcasts are great and long form journalism can be so informative. I love the podcast Paul Colgan and David Scutt do each week. It helped change my view to an RBA cut back in August when the ANZ’s Jo Masters made the compelling case they’d move rates, it was great to guest host with Paul and Kerry Craig from JP Morgan last week, and it’s been great to get the views of so many interesting people in Australian economics and markets.
But this week’s podcast takes it up a notch. I listened to it on the way back to Port Stephens last night and for 45 minutes Paul and David chatted with treasurer Scott Morrison about so many things. But what was so good about the conversation was that it gave them time to explore topics a little more deeply. Of course the Treasurer had a few partisan digs about Labor but overall I have a much better sense of who he is and what he’s about. Worth a listen.
4. Exactitude: UBS says there is a 31% chance of a recession in the US in the next year. Based on a credit model which considers four corporate credit measures: interest coverage, leverage, loan performance, and bank lending standards with recessions, UBS says the risk of recession is 31%.
It’s a really interesting read and it’s worth noting 31% means there is a 69% chance of no recession. But as we head to and through earnings season, and as we get the next couple of months of US data, it will be interesting to see if the recent soft spot for data is something more than an aberration.
5. If you can understand your emotions you’ll trade better – and this professor wants to help Wall Streeters understand their emotions. I’m mentoring a few traders at the moment and one of the things I focus on is emotions, and how their behaviours can influence their trading. So I was really excited when I read Rachel Butt’s story this morning that Brian Uzzi, Kellogg School of Management professor has developed a system that could alert traders or their respective companies of their emotional states — through analysing their emails and instant messages in real time.
“There’s a whole body of work in psychology that says based on the language that we use to describe our situation, we’re revealing our underlying emotional state,” Uzzi told Business Insider. Interesting stuff.
6.Deutsche Bank reckons helicopter money could be coming in Japan. Jonathan Garber reports on a little one-page note the analysts at Deutsche Bank put out after the BoJ’s decision this week. Deutsche Bank says the shift is sign the BoJ is out of options.
After 20 years of trying everything to get the economy going, that’s almost certain. But others argue that in setting a target rate for 10 years and letting the money base free to grow the BoJ might actually succeed in changing consumer inflation expectations. The jury is out and time will tell.
Anyway, the wash-up is DB thinks USDJPY is heading toward 94 by the end of the year. Credit Suisse agrees with them, Jonathan says. But the boys over at ForexLive report that Japan’s Asakawa (the MOF’s currency guy) says it will take time for market to digest BOJ decision. I’m with him.
Key data for the past 24 hours (with thanks to BNZ markets)
NZ: RBNZ official cash rate, 22-Sep: 2.0 vs. 2.0 exp.
UK: CBI trends, total orders, Sep: -5.0 vs. -5.0 exp.
US: FHFA house price index, m/m, %, Jul: 0.5 vs. 0.3 exp.
EZ: Consumer confidence, Sep A: -8.2 vs. -8.2 exp.
US: Existing home sales, m, Aug: 5.33 vs. 5.45 exp.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
TPG Telecom Ltd (TPM: ASX)
It’s been a tumultuous week for internet service provider, TPG and the volatility may not be over yet. The share price has lost 25% this week after the company provided guidance for profit growth this year which was well below consensus. It’s forecasting EBITDA growth of 6.4% in F17 whereas the market had been looking for 14%.
The stock may be in focus again today following comments on NBN pricing from Communications Minister Mitch Fifield. The key issue for TPG is that the fee being charge by NBN to access its network is a lot higher than the cost of TPG’s own network. As more customers sign up to the NBN, companies like TPG looked like being severely squeezed.
However, Mitch Fifield’s comments might provide a bit of encouragement and allay some of the markets worst fears. He noted that NBN was acutely aware of this issue and that its pricing is not set in stone and will be reduced.
At the end of the day though, the key issue for TPG might be valuation. It’s starting to look more like a moderate growth company operating in a competitive and relatively mature industry and with political risk to a monopoly government provider. The sort of thing that might justify a valuation multiple of around 15 times earnings, not the 30 times it was priced at a while ago or even perhaps the 18 times it is currently at.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC