Last night was a big one for traders.
Rumours of an ECB bond tapering pushed rates higher, the US dollar was stronger as the market bets the Fed is serious about rates, stocks were lower and gold collapsed $40 an ounce.
The wash-up for local markets is that the Australian dollar again found the 77 level a nut too hard to crack and the futures traders on the ASX have marked prices down for a weak open again today. The December SPI200 contract is down 31 points.
How the market ends, and how the Aussie dollar, currently sitting back at 0.7620, ends the day largely depends on how the data flows here in Australia today. We have the release of retail sales and the performance of services index which will be watched closely to see if the slowdown apparent in last month’s high frequency data persisted.
Here’s the scoreboard (7.51am):
- Dow: 18168 -85 (-0.47%)
- S&P 500: 2150 -11 (-0.5%)
- SPI 200 Futures (December): 5,442 -31 (-0.6%)
- AUDUSD: 0.7621 +0.0048 (-0.63%)
The top stories
1. The ANZ’s Shayne Elliott is up today after Ian Narev fronted parliament yesterday. If the share price moves for the banks yesterday is any indication then Ian Narev got a pretty solid pass mark with his bank’s stock price only down 0.2% to close at $73.30.
Here’s his statement to the parliamentary committee and Chris Pash covered the attack he came under on the “culture of bad behaviour” at the bank and the questions on interest rate decisions.
Next cab off the rank is Shayne Elliot. Yesterday his shares finished up half a per cent. Let’s see how he does today. Chris Pash will have more coverage as the story unfolds here at Business Insider.
2. Here’s JPMorgan’s comprehensive guide to markets for the rest of 2016. Enough said – worth the look.
3. A new taper tantrum for bonds could be around the corner. The bond bears are back with US Treasuries up 15 points from last week’s lows at 1.68% with German 10s up 12 points to -0.4% from last week’s low.
Last night 10-year rates rose 4-5 points and the catalyst for last night’s move was a Bloomberg story which said the ECB has built a consensus for tapering as it heads toward the scheduled end of its QE programme which is due to finish next March. The sources are naturally unnamed because the discussions are “confidential” and the ECB said in an email to Bloomy that no discussions on tapering had been had at the governing council level.
Folks, this is part of the paradigm shift in central bank thinking and the basis on which markets have been trading for the past few years.Just something to watch because if we get a rerun of the US taper tantrum, a market funk is around the corner. Traders will be eyeing the 1.71/75% zone for a break to indicate a run toward 2%.
4. Gold got destroyed last night. Gold collapsed from around $1310 in our timezone yesterday to an overnight low of $1266 an ounce. It’s currently back at $1269 but looking wobbly.
Naturally on the local market, gold miners are likely to come under heavy pressure, as their US counterparts did last night, in trade today. And that pressure may continue if gold continues to fall as rates rise.
Let me explain. I have a working hypothesis that part of gold’s allure, and its rally, since the lows in December 2015 has been the move into negative territory for much of the global bond curve – especially the 10s. So if there is a turn in the bond market – which I think there is – then gold is likely to remain pressured unless markets go into complete meltdown.
5. The IMF has trimmed its economic growth forecasts. If I told you that the IMF says it has revised growth down 0.1% to 3.1% for 2016 and 3.4% for 2017 you’d be forgiven for wondering what’s up with that. But the problem with that growth rate is when you strip out China, India and emerging markets, what’s left is moribund growth across the developed world. The IMF says that puts “further downward pressure on global interest rates, as monetary policy is now expected to remain accommodative for longer”.
Equally though, the IMF warned about the growth of populist political movements as a result of this low growth.
In advanced economies, a subdued outlook subject to sizable uncertainty and downside risks may fuel further political discontent, with anti-integration policy platforms gaining more traction. Several emerging market and developing economies still face daunting policy challenges in adjusting to weaker commodity prices. These worrisome prospects make the need for a broad-based policy response to raise growth and manage vulnerabilities more urgent than ever.
6. Bill Gross has accused the world’s central banks of being the worst kind of punters. So you’ve heard the one about punter who keeps losing and keeps doubling his bet in the hope s/he doesn’t run out of cash before they win and get back to even?
It’s a ridiculous notion but Bill Gross has said that is exactly what the world’s central banks have been doing. He’s leery of their actions and the impact on investors.
Gross says: “Central bankers have fostered a casino like atmosphere where savers/investors are presented with a Hobson’s Choice, or perhaps a more damaging Sophie’s Choice of participating (or not) in markets previously beyond prior imagination…Investors/savers are now scrappin’ like mongrel dogs for tidbits of return at the zero bound. This cannot end well.”
Key data for the past 24 hours (with thanks to BNZ markets)
NZ: QV house price, y/y, %, Sep: 14.3 vs. 14.6 prev.
NZ: QSBO, confidence, Q3: +26 vs. +19 prev.
AU: Building approvals, m/m, %, Aug: -1.8 vs. -6.0 exp.
AU: RBA cash rate, 4 Oct: 1.50 vs. 1.50 exp.
AU: Commodity index, SDR, y/y, %, Sep: 3.1 vs. 0.8 prev.
UK: UK construction PMI, Sep: 52.3 vs. 49.0 exp.
NZ: GDT dairy auction, index, %: -3% from prev. event
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
From a shareholder’s point of view, the banking inquiry will be about assessing whether what the politicians or the banks have to say signals any changes to the industry operating environment or to individual bank strategies. Judging by the lacklustre day’s trading in CBA yesterday, it seemed there was precious little to change the outlook so far.
Probably the most tangible likelihood is the potential to free up competition by allowing portability of bank account numbers. This would save customers the hassle of reinstating all their direct payment and credit arrangements when they switch banks.
It’s hard to argue with moves to improve competition like this from a public policy perspective. For banks, the risk will be increased customer churn more like the mobile phone and energy companies. That should increase price competition. No doubt there would be winners and losers in this.
At this stage though, there’s a long way to go before this general concept becomes a specific regulatory possibility. It will need to be done in a way which allows both big banks and smaller institutions to transfer customer information effectively and securely.
In the meantime, CBA has yet again rejected chart support around the 50% retracement level and previous lows. There seems no reason to suggest that another retreat towards this support will not again be an opportunity for potential buyers.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC