6 things Australian traders will be talking about this morning

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Stocks in Europe fell after China had another day to forget on its stock markets yesterday. But the US once again marched to its own drum with the big three indexes all closing higher after a choppy session.

That’s left the SPI 200 futures up a further 14 points overnight after the better than expected day on the ASX yesterday where stocks finished up 0.6% on the back of rallies in the miners and a turnaround in the banks.

Globally, the big mover was crude oil which is up another 4% in short covering and talk of production cuts. That’s helped risk assets and the Aussie dollar which has climbed to 0.7084 after an overnight high of 0.7120ish. Elsewhere gold is lower, copper sits at $2.05 a pound and US 10-year bonds closed at 1.98%

Here’s the scoreboard (8.20am):

  • Dow: 16,069, +125 (+0.79%%)
  • S&P 500: 1,893, +10 (+0.55%%)
  • SPI200 Futures (March): 4,939, +14 (+0.3%)
  • AUDUSD: 0.7084, +0.0063 (+0.79%)

And the top stories:

1. China is missing the point about what ails it. One of the most interesting stoushes I’ve ever seen in markets was the one between George Soros and the Bank of England over the value of the pound and its inclusion in the ERM back in the early 1990s. Soros was at the height of his powers and he knocked the pound for six and out of the ERM.

Fast forward 20 odd years and Soros is at it again. Not quite in the manner that he used to target the pound, but his reputation is such that his bearish comments about China and the yuan have riled Chinese authorities into a state of apoplexy. Yesterday David Scutt reported that China’s state-run media has picked a big fight with Soros.

In targeting Soros, China is undermining its credibility in markets and in doing so is hurting itself more than Soros. In behavioural, and Shakespearean terms, “the lady doth protest too much”. Which is why on the day that the Chinese central bank made the largest cash injection in three years (340 billion yuan), Shanghai stocks closed down 2.85%.

Also on China. Linette Lopez has something on how to tell whether China is really heading in the right direction.

And, ZeroHedge, with an interesting theory that targeting Soros is a bit of a magician’s trick before the Chinese drop a big devaluation bomb.

Oh, and if you’re wondering how well Chinese markets are doing, Scutty reports Chinese stocks have nearly halved over the past 6 months. So, not well.

2. Russia is doing its best to ramp the price of oil. We haven’t heard from the Saudis yet but the Russians are certainly doing their best to give a strong impression they are on board with a plan to cut production. After Nikolai Tokarev, head of state pipeline monopoly Transneft, said “there was a discussion about the price of oil,” on Wednesday night it was Russia’s energy minister who was at the pulpit overnight.

The FT reports that Alexander Novak, Russia’s energy minister, said Russia would meet with OPEC next month. We still haven’t heard from the Saudis. But what makes the current chatter resonate with the oil market bears, and why they are chasing their shorts higher, is that Russia used to oppose cuts. That’s something Novak addressed directly saying: “We had these sorts of consultations before, when the situation was somewhat different. As we see, prices have fallen.”

Cue the rally in oil. At least until we hear something from the Saudis.

3. Are global investors really smart or just complacent? I got my hands on a survey from State Street Global Exchange yesterday which I think is one of the most fascinating encapsulations of what’s going on in markets at the moment.

The Investor Confidence Index showed that for all the ructions in markets during the month, big global money managers are still long risk assets. The index represents about 15% of the globe’s assets under management.

But here’s the intriguing part. Are money managers doing what money managers do and looking through the noise? Or, are they dangerously complacent and a day of reckoning could happen if markets don’t snap back soon and a wave of cash is taken out of risk assets? Time will tell.

4. Fortescue might be on the nose but it’s doing a great job at cost reduction. Yesterday I highlighted that FMG was on the nose with investors, but after CEO Nev Power reported yesterday that the company had dropped its ‘wet’ production costs to US$15.80 a tonne from $US28.48 a tonne, the price rose a little under 4.5%.

On SkyBusiness yesterday, Power wouldn’t reveal the company’s break even cost – yet – but he said that it would be lower than previous guidance of $36 a tonne. The stock price closed at $1.52 yesterday. If it can get up through the the $1.61/64 region, traders might get excited about the company’s prospects for a rally. Ric Spooner has more below.

5. Australia’s treasury secretary warns of a bleak future for our kids without reform. Okay, so this won’t make traders any money today. It won’t make them any money tomorrow either. But the speech overnight from Australia’s treasury secretary John Fraser is important in framing the government’s approach to the budget, the deficit, our Triple A rating and reform.

I’ve wrapped it here and it is worth a read. A very important speech.

6. US hedge fund manager Mark Yusko has 10 things that could surprise the market this year. The North Carolina-based fund manager, the chief investment officer of $3.7 billion Morgan Creek Capital Management, revealed his lengthy predictions for the year ahead – but they’re well worth a look.

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

Fortescue (FMG)

Following a now familiar theme, Fortescue’s production report yesterday revealed further efficiency gains. Production was solid at 41.6m tonnes in the December quarter. Even more impressively, its C1 costs fell another 7% to $US 15.80n per tonne. These are basically the cash operational costs of mining excluding costs like capital; administration and exploration. These operational efficiencies allowed Fortescue to make another early debt repayment of $US 750m last quarter.

The problem of course is the price it’s receiving for its product. This was down a whopping 19% to $US40.60 per tonne which equates to about $46.70 for the 62% fines price you see quoted in the press each day.

The Fortescue chart looks as though it might be in the process of forming a large, expanding basing pattern. This is shown by the blue lines on the chart below. The support level for this is down around $1.25. Right now though, there’s a minor trading range developing. Resistance is at $1.61 and a break above this could see a corrective rally developing.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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