Stocks in the US were lower overnight.
Whether it was pre-FOMC nerves, concern about the slide in oil prices, or just a bit of position squaring after a solid rally is hard to tell. But there seems to be a subtle shift in sentiment over the past few days with the S&P 500 range-bound for the last four sessions.
Could that put a handbrake on the Australian markets stellar rally? The SPI futures indicate a rise of just 1 point to add to yesterday’s 35-point rally which left the ASX200 at an 11-month high of 5533. There are plenty of headwinds but the market remains very well bid.
Also well bid is gold which is under pressure but remains steadfastly above $1300 for the moment. But worries about supply gluts hurt oil with WTI down 2.5%. Iron ore continues to gyrate.
On forex markets, the Aussie dollar is in a holding pattern and back where we were this time yesterday. The Canadian dollar is under pressure with the oil price fall, the Kiwi remains under 70 cents and the yen is bid even though promises of monetary and fiscal stimulus seem certain to be delivered in short order.
Here’s the scoreboard (8.05am):
- Dow: 18493 -77 (-0.42%)
- S&P 500: 2168 -7 (-0.3%)
- SPI 200 Futures (September): 5,484, +1 (+0.0%)
- AUDUSD: 0.7468 +0.0008 (+0.01%)
The top stories
Don’t miss Ric Spooner’s look at the rise and fall of Nintendo’s share price at the end of the post.
1. Australian banks have had a cracking rally. Time to sell? The big four rallied yesterday even though most pundits seem to think tomorrow will see a low print for inflation which will in turn lead to an RBA rate cut next week. Lower rates put margin pressure on banks so that made little sense really. But then again it was also just one day’s noise.
Structurally though, after a solid rally there is a growing feeling that it’s time to sell Australia’s big banks again. No lesser light than Ross Barker, managing director of the $6.6 billion Australian Foundation Investment Company, says he’s switching out of the banks and into mid caps. David Pain, a London-based hedge fund portfolio manager, and James Whelan, investment manager at VFS Group agree with Barker. You can follow the link for more on why these guys reckon the big four are going down.
2. Deutsche Bank says there is a big pullback in stocks coming before the US Presidential election. Myles Udland reports that Deutsche Bank’s David Bianco thinks the next move for the S&P 500 is a 5% to 9% decline. If he’s right that means Australian stocks are likely to come under pressure as well.
Bianco said a 5% to 9% decline in the benchmark stock index is likely ahead of the election, “given risks to healthy EPS growth and PEs becoming too dependent on low yields”. That’s a theme I heard from a few guests when I was co-hosting Sky Business last night with Carson Scott and Scott Phillips from the Motley Fool. Steen Jakobsen from Saxo told us the best place for cash is to go on holidays. We also had George Boubouras from Contango Asset management saying that while equities should outperform bonds, in an asset allocation sense, stock valuations are rich.
Just something to think about up here at 5530/50 on the ASX200.
3. Yahoo has sold its core business to Verizon – here’s all the important BI stories on the deal. It’s official. Marissa Mayer has sold the core assets of Yahoo to Verizon for $4.8 billion. Whether it’s a good day, or a good deal, depends on who you are or your perspective. If you had been holding Yahoo stock for a decade or so you’ll probably be a little disappointed given the company was once valued well north of $100 billion.
Anyway here’s the key stories you need to catch up on from Business Insider overnight:
- It’s official: Verizon will acquire Yahoo for $4.8 billion
- Yahoo is the latest piece of Verizon’s $10 billion plan to challenge Facebook and Google.
- A handful of tiny firms will make a killing from the Verizon-Yahoo deal
- And even though it might look like it Mayer refuses to say Verizon sale was ‘at all’ a failure.
- Maybe because her golden parachute will be worth $54.9 million if she gets fired.
4. Italy’s troubled bank Monte Paschi de Sienna got hammered last night. The Italian banking train wreck continued again last night with Italy’s third largest bank Monte Paschi down 8.4% overnight as traders bet on more trouble ahead for it and the Italian banking system. On Sky last night, I asked CMC’s UK-based strategist Michael Hewson what he thought of the chances of contagion from Italy, to Portugal and the European banking system more broadly.
Hewson said the troubles at Monte Paschi, and Portugal’s Novo Banco (which itself is a reconstructed bank) are bigger than many recognise. That includes Italian politicians who continue to say the problems are not systemic. Something Hewson thought was a complete underappreciation of the risks. Although Reuters reports Italy is trying to press gang its pension fund sector to help bail out the banks.
You’ll recall that Monte Paschi has been a good indicator of Deutsche Bank’s share price and even though the German bank was about to eke out a 0.57% gain last night, it’s increasingly looking like traders may have to face another European banking crisis in the months ahead.
5. Here’s another example of why what Mark Carney has done to UK sentiment is just plain wrong. I’m not normally one to have a pop at central bankers. In general I believe they seek to do the best they can which usually means do least harm. Our own central bank, the RBA, is probably the best of the best at this.
I used to think Bank of England governor Mark Carney was just a step behind Stevens and co at the RBA. He cut aggressively when he was at the Bank of Canada and helped the nation forestall the worst of the GFC. He invented forward guidance, which although imperfect, was critical in the early days of the crisis and recovery. But his performance in the run up to Brexit, the scaremongering and the fear he spread was counter to the notion of do least harm. Perhaps he genuinely believed the UK would be a train wreck, perhaps he thought he was bolstering the stay vote, but in voicing these concerns he gives them real oxygen.
Now I’m not saying he’s supposed to be a cheerleader but as a behavioural finance and economics guy I know what he says affects people and business. Already we saw Friday that the Market services and manufacturing PMIs collapsed below 50, while overnight a Confederation of British Industry survey showed that Britain’s manufacturers haven’t been this depressed since the financial crisis. Yet just like the Markit PMI, German businesses’ approach to Brexit is ¯\_(ツ)_/¯. Because the collapse in sentiment was so acute I’m hopeful we’ll see a snap back when things don’t turn out as bad as feared. Brexit is already being delayed. Will it ever actually happen?
6. If you trade, you should listen to Malcolm Gladwell’s new podcast. Yesterday I wrote a piece where Malcolm Gladwell explained why Brexit, Donald Trump, and the rising vote for minor parties in Australia are the same thing. I had to travel down to Sydney after I wrote that and decided to spend the time listening to his new podcast called “Revisionist History”.
I loved the way he tied the plight of Elizabeth Thompson, the painter of Roll Call and Julia Gillard’s tenure as Australian prime minister together in episode one. But it was episodes two and three that I thought were brilliant and a must listen for traders. Neither is actually about trading, episode two is about Rand Corp and the Vietnam War while episode 3 is about Wilt Chamberlain and underhanded basketball free throws, but both have some real lessons for traders and investors if you want to really succeed over the long run.
Have a listen – it’s worth the investment of your time.
Key data for the past 24 hours (with thanks to BNZ markets)
JP: Trade balance, adj. (¥, b), Jun: 693 vs. 474 exp.
GE: IFO business climate, Jul: 108.3 vs. 107.5 exp.
GE: IFO expectations, Jul: 102.2 vs. 101.6 exp.
UK: CBI quarterly bus. optimism, Jul: -47 vs. -15.0 exp.
US: Dallas Fed manf. activity, Jul:-1.3 vs. -10.0 exp.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
I saw a cheeky headline yesterday “Nintendo shares plummet after it points out it doesn’t make Pokémon Go”. Nintendo’s share price was limit down yesterday after the company released a statement reminding everybody that it’s effective economic interest in the company that owns Pokémon Go is just 13% and that it’s not expected to make any material difference to current year earnings due to be released tomorrow. Revenue from Pokémon had already been factored into guidance.
Despite the headlines, this should not have been news to stock analysts. The issue is future earnings; especially the extent to which the intellectual property involved in Pokémon Go can be extended to future opportunities. As the chart below demonstrates, opinions are clearly much divided.
Ric Spooner, chief market analyst, CMC Markets. You can follow Ric on Twitter @ricspooner_CMC
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