6 things Australian traders will be talking about this morning

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Finally some action. In commodities at least, with big moves in oil, precious and base metals which came under heavy selling pressure.

Stocks in the US were a little lower as well with the S&P ending down 0.52%, continuing its remarkable run of super low volatility. But that fall hardly dented the enthusiasm of local traders in the September SPI 200, which dipped just 0.1%, 6 points, overnight.

On forex markets trade was mixed. Sterling was higher, the euro lower and the Aussie dollar hung reasonably tough after traders tried to thump it lower at one point overnight. It’s at 0.7612 this morning.

Here’s the scoreboard (7.35am):

  • Dow: 18481 -66 (-0.35%)
  • S&P 500: 2175 -11 (-0.52%)
  • SPI 200 Futures (September): 5,537, -6 (-0.1%)
  • AUDUSD: 0.7604

The top stories

1. John McGrath says Sydney prices have had it for the year but Newcastle, Wollongong and the Central Coast will keep rising. The life and times of John McGrath continue their interesting journey. Yesterday he stepped down as joint CEO to a role as executive director in charge of strategy at the company he founded back in 1988.

But as interesting as that is, it’s his comments about NSW property prices that caught my eye.

The AFR reports McGrath said “I forecast 6-8 per cent growth in Sydney house prices this year. We’ve seen the majority of that already so I see very little increase in prices going forward.” But, “I think there will be more significant growth in prices in the big regional locations like the Central Coast, Wollongong and Newcastle”.

2. Blackmores’ bursting bubble continues. Sometimes you look at the chart of an asset and the price action just screams bubble. That was the case earlier this year when I was asked about Blackmores while co-hosting on Sky Business. I wrote about it the next day and I’m pretty sure I said it reminded me of the price action in gold to the highs before its big fall in recent years. It wasn’t a discussion about fundamentals – just price action.

That fall found support at the downtrend line and the stock’s price bounced. But then yesterday Blackmores shares got destroyed dropping almost 20% to $129.50. It seems it’s not over yet – Reuters reports Goldman has downgraded the company to a new target of $120 a share. That’s down from the previous target of $164.50 (no, really). It’s also back to retest the bottom of the downtrend channel.

Blackmores Daily Share Price (Reuters Eikon)

3. That index fund or passive investment vehicle you’re buying could be doing the economy more harm than communism says Bernstein research. This is interesting. Analysts at Bernstein led by Inigo Fraser-Jenkins, that the rise of passive investing presents some seriously dangerous real-world barriers to the efficient allocation of capital in the economy is spot on, I reckon.

It’s not the fault of the investor, or the funds. Both are taking advantage of the fact most fund managers aren’t as good as they think they are and often struggle to beat their benchmark (chicken and egg argument noted).

But, “Active investment decisions form a crucial part of the capital allocation process in an economy and as such there is a clear and distinct social worth in their aggregate action,” Bernstein writes.

If I could play devil’s advocate for one sec though – if I were a CEO with a host of passive investors on my stock register it would free me up to be innovative, and to take risks which should mitigate the downside. Just saying.

4. Hedge funds are suffering the biggest redemptions since 2009 as they struggle to perform. As if on cue to make the above point why passive investment strategies are so popular, Bloomberg reports “Investors pulled an estimated $25.2 billion from hedge funds last month, the biggest monthly redemption since February 2009, according to an eVestment report”.

That follows Junes outflows of $23.5 billion and brings the total outflow from actively managed hedge funds to $55.9 billion.

5. It was a tough night for commodities – oil crushed, gold and other comms down. Akin Oyedele reports Wednesday was a painful day for crude oil and precious metals. West Texas Intermediate crude futures in New York fell nearly 3% to $46.72 per barrel after data showed an unexpected build in US inventories last week of 2.5 million barrels.

Gold fell 1% and took out support at $1329 – it’s at $1323 – while silver and other precious metals also lost more than 1%. Commsec’s chief economist Craig James reported this morning that base metals were also under pressure. “Base metal prices fell by between 0.3-2.7% on the London Metal Exchange with lead down the least while nickel fell the most,” James said.

6.Is the collapse of the copper price this week sending a signal about growth? Copper is one of those commodities to which traders attribute mystical powers. Dr Copper, the commodity with a PhD, they call it. Why? Because the ubiquitous nature that copper played in so many facets of the global economy meant it was seen as a lead indicator of global growth.

Copper is down 5% this week, back at $2.07 in US dollar terms per pound. It’s also butting down toward the 12-year uptrend. As copper’s own price action this week shows, after an extended period of quiet trading a break out, and a sharp move, can happen. Traders should keep an eye on copper – it could be the canary in the global markets mine.

US Copper Future 1st contract (Reuters Eikon)

I’m Greg McKenna and you can catch me on Twitter or at AxiTrader where I am the Chief Market Strategist.

Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Trade balance, NZDm, Jul: 433 vs -325 exp.
AU: Construction work done, Q2: -3.7 vs. -2.0 exp.
GE: GDP, s.a. q/q%, Q2F: 0.4 vs. 0.4 exp.
US: FHFA House price index, m/m,%, Jun: 0.2 vs. 0.3 exp.
US: Existing home sales, m/m, %, Jul: -3.2 vs. -1.1 exp.

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

Qantas

The well received Qantas result produced some interesting price action yesterday.

After hitting its 200 day moving average, the stock finished 4% below its high. Turnover was also pretty solid at 21.6m. These are both indicators of a possible short term turning point.

This may not be too surprising as, despite the good press surrounding yesterday’s result, it actually represented a small miss on consensus expectations.

From a chart point of view, a close today below yesterday’s low at $3.42 would be another sign of weakness. That could signal a retracement of the latest minor uptrend, perhaps back to the $3.20-$3.30 range.

You can follow Ric on Twitter @ricspooner_CMC

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