Good morning! Another day of tiny moves in global stocks. More on that in a tick, but first, the scoreboard, which is unremarkable apart from crude:
- Dow: 18,549.15, +19.73, (+0.11%)
- S&P 500: 2,187.33, +4.69, (+0.21%)
- SPI ASX futures: 5,532.5, +37.0, (+0.67%)
- AUD/USD: 0.7613
- WTI crude oil: $48.04, +$0.63 (+1.33%)
The top stories
1. Markets could be in for a shock. This chart from BAML shows traders are short the VIX more than ever before:
BAML’s currency and rates strategists say the quiet US summer is keeping investors complacent. And they warn it could blow up spectacularly. Emphasis added here:
The recent chase for yield has potentially reached an important inflection point. Selling vol to enhance yield is now at an extreme level, with net speculative VIX exposure at all time shorts. Furthermore, this reach for yield is apparent across FX, equity, and fixed-income markets. In our view, complacency combined with short vol exposure could set up the market for a highly volatile and correlated sell off on the next shock. Carry trades that look attractive due to severely depressed volatility levels could unwind on even a modest increase in volatility.
Bob Bryan has more.
2. There was more strong data out of the US overnight – but there’s a speed bump. US new home sales were their strongest since 2007 and the Markit flash manufacturing PMI came in OK too at 52.1. But it was lower than the 52.7 expected and the weakness was in order growth. Markit described it as “a warning light that domestic demand has waned in August, and the pull-back in hiring suggests manufacturers have become increasingly cautious about the outlook.” All of this matters because the Fed is picking over every bit of data right now for signs that the way is clear to raise the federal funds rate again.
3. And here’s another flashing light for the American economy. Business investment in the US has declined for the third straight quarter. The last time that happened without a recession was 30 years ago.
Some Australians might look at this with a knowing smile – it’s not dissimilar to the type of fall in business investment that Australia has been witnessing as the mining boom has unwound. It’s just possible that some of what’s happening is tied to all of the political uncertainty in the US right now. Linette Lopez has more.
4. Oil spiked on more OPEC rumours. The latest is Iran signalling it might support joint action in order to support prices.
5. Iron ore’s rally continues, but Citi thinks its days are numbered. The spot price was up another 0.85% to $61.75 a tonne last night, putting the gains so far this year at 41.7%. Huge. Here’s Citi’s take, though:
Iron ore market fundamentals have provided little support to this rally, as seaborne supply remained strong from low cost production, and inventories at Chinese ports built 11.5 million tonnes YTD while those at mills are generally stable.
Instead, iron ore prices largely followed a rally of Chinese steel product prices, which was likely a result of strong property new starts and investment, robust growth of auto production, and temporary closure of mills due to key events and environmental regulations.
6. How is Australia going to manage all the changes in the workforce over the coming years? Already we’ve seen huge disruption in the retail sector, mining, hospitality and media. There’s no doubt there’s more to come, including in banking and finance. Which is why you wonder why the taxi industry manages to get its special dispensation, with Victoria announcing yesterday it would add a $2 surcharge to cab rides for the next eight years to fund a compensation fund of almost $380 million for taxi drivers. Sure the government had a hand in first, handing out the licence plates, and then making the decision to open up the market, but government arguably has some oversight of all investment decisions. Nobody’s talking about compensation for Woolworths because Masters was a disaster. And would we expect payouts for home owners if property prices tanked because of one government policy decision or another? No. More here.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Healthscope (HSO: ASX)
Private hospital operator, Healthscope, overcame mounting consumer resistance to the cost of private health insurance to deliver a solid profit result. Revenue in from its hospitals grew 5.1% while improved profit margins contributed to a healthy 25.1% lift in net profit after tax.
Healthscope operates 45 hospitals. Last year it completed new projects in the Gold Coast, Victoria and Canberra. It currently has 10 construction projects underway, including the flagship Northern Beaches hospital in Sydney.
The initial reaction to yesterday’s profit result was strong but at around 25 times forward earnings, profit taking emerged quickly and the share price peaked neatly at chart resistance. If this holds, we could easily develop a rectangular trading range. The support for this would be around the previous lows and 200 day moving average at $2.67. This might be an area of interest for those looking to buy dips.
If the stock price goes on with the job from here and breaks resistance, the sloping trend line might come into play. This has already acted as support twice and resistance once. It would now provide resistance around $3.15.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC