6 things Australian traders will be talking about this morning

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Boom, Santa Claus is here.

That’s the view of NYSE floor governor Rich Barry who said overnight that this is the first day of the Santa Claus rally. Europe largely missed the memo, but on the ASX and around Asia yesterday, and then on US markets last night, stocks have roared higher.

That’s despite disappointing manufacturing data, or perhaps because of it given that US rates rallied hard to their lowest levels in a month. To some that means the Fed Dec hike is not a lock. My bet is it still is, just with some very dovish language to accompany it.

That rally in bonds, and shift in thinking about the Fed, saw the US dollar come under pressure with the Aussie rallying to its highest level since October. The Kiwi and euro rallied hard but most other currencies pushed higher as well in varying degrees.

Base metals are up a little, oil has been trading either side of no change and gold remains becalmed but relatively weak.

First the scoreboard (8am):

  • Dow: 17,881, +167.43 (+0.95%)
  • S&P 500: 2,100.68, +20.27 (+0.97%)
  • SPI200 Futures: 5,200, -2 (+0.08%)
  • AUDUSD: 0.7329 +0.0103 (+1.44%)

And now, the top stories:

1. Australian stocks. NYSE floor governor Rich Barry has written today that this is day one of the Santa Claus rally. It’s a notion familiar to local investors after the ASX, and most of Asia, had a very solid day’s rally to open December.

The market surged the best part of 100 points with a rally to 5,266. BHP was a standout up 3.6%. But Steve Daglian from CommSec noted that was after “slumping by 21 per cent in November”. Dick Smith recovered 25% after the heavy selloff the day before, while the banks all performed admirably with gains of 1.8% to 2.5%.

Chris Weston, IG’s chief market strategist, tweeted this morning that the “ASX looking for a flat open today. Still need 150 point to break even for year.” Coincidentally, that’s also around where the downtrend line from May comes in. Here’s the chart:

investing.com – ASX200

2. The surge of the Australian dollar. One of the easiest trades of the year has been the recovery in the Aussie dollar lately. I say that because it became apparent when it was below 70 cents a couple of months back that the Aussie dollar was universally loathed with expectations that it would soon crash to 65 cents. Some even thought 60 cents. That set up a contrarian trade because positioning had baked a lot of bad news into the cake.

It’s one of the reasons the Aussie was strong recently as commodities crashed. Investment committees at trading houses and fund managers all over the world would have been sitting there and most likely saying, “Yeah we know that.”

But with the Aussie (0.7333) now getting back toward October highs around 0.7380 those conversations might be changing. Certainly many hypothesise the RBA is worried. If they aren’t now, they most certainly will be if the Aussie breaks 74 cents.

3. Australia’s Q3 GDP. The official growth figures for the third quarter will be released at 11.30am AEDT. The partials (economic releases that are part of the addition to generate the growth rate) are in and most forecasters have upgraded their forecasts with the average expectation for 0.8% for the quarter and 2.4% year on year. David Scutt has a great preview of the release.

This is a historic number but it’s a big one. Traders will be at the ready, fingers poised over the trade buttons. Buy, or sell?

4. Santos and Rio Tinto. Even though there is a massive pool of government mandated savings that has to go to the stock market every week by way of superannuation contributions, that doesn’t mean Australian investors are mugs. That’s the clear message you get in the re-rating of the banks and big miners recently, the disappointment shown with Dick Smith, Slater & Gordon and of course Woolies as investors wonder who’s driving the bus. The flip side is many positive stories and performances like Blackmores.

Once again Australian investors look like they are exercising their own opinions with the AFR reporting this morning that: “Retail investors in Santos are thought to have taken up well less than half their entitlements in the $1.35 billion retail part of the embattled oil and gas player’s $2.5 billion capital raising, leaving a chunk of shares to be sold in a shortfall bookbuild on Thursday.”

That’s no surprise given the Santos share price, at $4.06, is down near the lowest levels since 2000.

Also interesting is the AFR story about the Rio Tinto dividend being “safe but a strain according to fund manager Aberdeen”. It feels like investors are completely recalibrating their views on the entire market from the ground up. Short term pain but that should, might have, cleared the decks for a more positive outlook.

5. A December Fed Rate hike is NOT a lock. Yesterday I highlighted that the data suggests the US economy could already be past its sweet spot. Data has gone from beating expectations to undershooting across many metrics. Last night was no different with the Institute of Supply Management’s manufacturing index a big miss with a print of 48.6. That’s the lowest since June 2009. And raised calls that US manufacturing is in recession.

It’s also caused Chip Rupkey, an economist at MUFG Union bank, and the man who said the December Fed rate hike was a lock last month to say last night’s data “takes a little certainty out of the Fed’s December liftoff.” Myles Udland has more here.

6. Glenn Stevens is speaking this morning. Just 18 minutes before the release of Q3 GDP, the RBA governor will be speaking at the Australia-Israel Chamber of Commerce.

His topic, “Economic Conditions and Prospects”, will be watched closely for any hints of future policy direction or, in particular, disquiet about the rising Aussie dollar.

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

Harvey Norman (HVN: ASX)

Harvey Norman had a good day yesterday and has now rallied 11% over the past couple of weeks. There are some positives here. One is value. HVN is currently trading around 15.3 times forward earnings which looks reasonable. Another is the improving labour market and the prospect of solid consumer spending.

It’s not all plain sailing though and the stock also has some potential headwinds. One is the Dick Smith and the likelihood that in the short term that they will be ramping up price competition as they seek to get rid of excess inventory. The other is the housing market. Emerging signs of a slowdown in growth might take a bit of the shine off the growth in sales of furniture and large appliances over the next 12-18 months.

Putting these competing influences together, the upcoming chart resistance levels may be worth keeping an eye on. The first is around $4.25/$4.30 and includes the 50% retracement level and 200 day moving average. Above that is the 61.8% Fibonacci retracement around $4.43.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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