It’s a confusing time for traders at the moment with the crash and rebound in markets now giving way to a period of stability as traders await the next show to drop.
That helps explain the stability in stocks offshore in the US over the past week or so.
Last night, US stocks were again fairly quiet but the data flow is intriguing. Last week we saw US first quarter GDP increased from 1% to 1.4% but the “nowcast” of US GDP (more on that later) has been downgraded after recent data including last night’s disappointing personal income and spending data which saw a 0.4% downward revision to the January spending figures to just 0.1%.
That knocked the US dollar a little which has helped the Aussie climb back to the mid 75 cent region. But overall, save for what looks like a thin market-induced rally in the pound, it was a fairly quiet night for forex traders.
Local stock traders have plenty to think about though. Not necessarily from offshore catalysts but perhaps whether the heavy selling that occurred in the major banks last Thursday makes any sense. Or whether traders will be back on the bid today.
And of course every trader on the planet will be waiting to see what Fed chair Janet Yellen has to say tonight.
Here’s the scoreboard (7.52am):
- Dow: 17,535, +20 (+0.11%)
- S&P 500: 2,037, +1 (+0.05%)
- SPI200 Futures (June): 5,069, -12 (-0.2%)
- AUDUSD: 0.7540, +0.0017 (+0.22%)
Now, the Top Stories
1. Australian banks got hammered last week – what’s next. It sounds ridiculous but the revelation that the ANZ was increasing provisions for losses related to resources by $100 million and Westpac by $25 million last Thursday knocked around $4 billion and $5 billion respectively off the market capitalisation of both stocks. The CBA and NAB didn’t miss out on investors’ ire however, with total losses for the majors in the vicinity of $15 billion all up at the close of trade last Thursday.
At first blush, that price action seems like a complete over-reaction. But is it?
Australia’s banks are still well managed, have an unassailable market position, and APRA has been pushing them to increase their capital to give a larger buffer in case there is a stressful period ahead. What traders seems to have been spooked by last week, however, is the potential for further slippage both in provisions but also the economic consequences of the end of the mining boom radiating out from corporate exposures into the consumer side of the banks’ lending books.
On that basis, and with the banks likely to compete each other toward lower profitability – now that the ANZ and NAB will also be even more focused on the lucrative local home lending market – maybe the $15 billion wiped off the market cap of the big 4 is as ridiculous as it seems.
2. An Australian fund manager says the Aussie dollar will force the RBA to cut rates. The Australian dollar is comfortably above 75 cents again this morning. That’s likely to not only concern the RBA but prove a drag on Australia’s economic growth says Vimal Gor, BT Investment Managements’ head of fixed income.
“We’re just sitting here on a slow glide path lower in terms of growth; unfortunately at the same time the currency’s appreciating, which exacerbates the slowdown,” Gor told Fairfax.
He thinks the currency is 10% overvalued and as a result, 50 basis points worth of cuts in the second half of the year are on the cards.
3. UBS reckons Warren Buffett is now surplus to requirements at Berkshire Hathaway. Okay, not exactly surplus to requirements, but analysts at UBS reckon he’s done such a great job building the firm that it no longer relies on Buffett’s legendary stock picking bets. That’s good news – Myles Udland has more here.
4. The Atlanta Fed says the US economy is tanking. Recently, Australia’s treasury secretary John Fraser said that his department wants to build a GDP “nowcast” to give a real time feel for how fast the economy is growing rather than wait a few months for the ABS to tell him where things were a quarter ago. It’s not a perfect process, because like the data, the guesstimate of where growth is moves around. But increasingly traders and markets are watching nowcasts of economic growth and putting faith in them.
That’s important background to Udland’s report that the Atlanta Fed’s GDPNow forecast has resumed its rightful place as a harbinger of economic doom with a forecast that growth in the US has slipped all the way back to just 0.6% for the current quarter. That’s a big drop from the 2.3% reported recently. Here’s how far the growth expectation has fallen off a cliff – no wonder the US dollar is a little weaker.
5. DEUTSCHE BANK: Stocks aren’t going anywhere until after the US election. In a note to clients over Easter, David Bianco, chief US equity strategist at Deutsche Bank, said he expects the S&P 500 will stay in a pretty narrow range between now and the US election. Bianco reckons that range is going to be between 1925 and 2100.
“We do not expect the S&P to fall back into correction territory as a double-dip correction already happened and it would likely take clear signs of an impending US recession or a new global shock to cause renewed investor panic,” Bianco wrote.
6. It’s a quiet week in Australia but still a massive week for US data – here’s Myles Udland’s look ahead. If you ever needed any indication that jobs data is anything other than a “survey” then look no further than the release of US non-farm payrolls for March on Friday night. Yep, just a day after the end of the month, the US Bureau of Labor Statistics is going to confidently tell us exactly what its guess is for the number of jobs that were created in the previous month. It’s the most important monthly economic release in all of markets and it caps off a huge week of data.
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And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
There are two core elements to Woolworth’s strategy for stabilising its market share. The first is to reduce prices. The second is to convince customers that it’s competitive with Aldi. Given the loyalty that the Aldi brand has attracted, the second part of this strategy won’t necessarily be easy.
As part of this strategy, Woolworths will be revitalising its private label brand. It will gradually transition a lot of items from its Homebrand to its Essentials brand. Essentials will be used as a flagship for positioning Woolworths as a low cost supermarket. It will house cheap items with better quality.
The $24.50/$25 resistance zone looks like a key test of investor sentiment towards Woolworths. The 200 day moving average forms the top boundary of this resistance. Apart from a couple of minor blips, the share price has been below this average for over 18 months.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC