6 things Australian traders will be talking about this morning

Spencer Platt – GettyImages

After a terrible day on the local stock market Friday, where the big banks were hammered again and the 200 index finished down 1.64% at 4,999.39, futures rallied on Friday night suggesting traders should have a better day today.

The source of the futures strength was the rally in US stocks after the release of non-farm payrolls hit what you might call a sweet spot for stocks which neither threatens Janet Yellen’s dovish outlook on US rates nor the continuing recovery in the economy and jobs market.

Elswehere, crude fell heavily to $36.70 a barrel as the Saudis signalled there won’t be a deal at the mid-month OPEC/non-OPEC meeting. Gold dropped more than $10 an ounce to $1222 and copper was off again at $2.16 a pound.

On currency markets, there wasn’t much action but US dollar sellers looked a little tired Friday and the Aussie and euro may have to fall a little to test support before they kick on to higher levels.

Here’s the scoreboard (6.37am):

  • Dow: 17,792, +108 (+0.61%)
  • S&P 500: 2,072, +13 (+0.63%)
  • SPI200 Futures (June): 5,046, +23 (+0.5%)
  • AUDUSD: 0.7664, -0.0003 (-0.04%)

Now, the Top Stories

Surely it’s time for the ASX to bounce. It was another tough week for local stock markets as the ASX was hammered again after the banks took another pummelling. The 200 index closed the week just below the psychologically important 5,000 level. Since the mid-March high at 5,216, the ASX 200 is now down 4.16%. At the same time, the S&P 500 is up 2.8%. The big question for traders is whether it’s time for the ASX 200 to finally play catch up or if the market is still too worried about Australian banks.

ANZ, CBA, NAB, and Westpac daily (Reuters Eikon)

Investors think a bounce is in the offing according to a Reuters poll of 10 strategists released Friday. The poll showed respondents expect the ASX200 to rise to 5,300 by mid-2016 and 5,500 by year’s end before climbing to 5,650 by mid-2017. Futures were higher Friday – so at least the week should start off positively.

2. Q1 2016 was wild but what about Q2? Here’s the view from BAML. It was a wild ride during the first quarter of this year and the strategists at BAML say that not only did we see a big reversal in markets halfway through Q1, we also saw a big reversal in fund flows for many asset classes with bonds, gold and silver, utilities, Treasuries and credit clear winners while money flowed heavily out of equities, developed markets, tech and financials.

Source: BAML – The Flow Show

What’s it mean for the next 23 months though? BAML says:

Policy “success”/”failure” to dictate Q2 returns (either “last chance to buy” like late-1998 when big policy coordination/stimulus boosted macro or “last chance to sell” like spring-2008 when credit crisis & debt default thereafter sparked market/macro meltdown – watch commercial real estate, private equity, auto lending); we’re happy to be
sellers.

3. But this indicator says a 20% drop in stocks could be coming soon. Margin debt right now is sending a very clear signal that investors have recently become very greedy. This suggests returns over the next several years should be very poor,”says Jonathan Garber in a really interesting, but somewhat troubling note over the weekend. He reckons the trend in margin debt also suggests that a new bear market is likely under way.

4. It’s turning into a great time to take a holiday to the UK. Last August, when markets went into a funk, your Aussie dollar only bought you 45 pence. That equated to a GBPAUD rate of 2.20 – every pound bought roughly 2.20 Australian dollars. Now with a stronger Aussie dollar and Brexit support massively ahead in the latest poll GBPAUD is down at 1.85 – that means your Aussie dollars are now buying 54 pence.

Traders are telling me it can’t last, but who knows – a stronger Aussie and more trouble for the pound and trips to the UK might be all the rage again. But it will be a long time – if ever – before the Aussie gets back into the high 60s against the pound that we saw in 2011, 12 and 13.

5. Watch the price of crude – it’s tanking again. Oil fell heavily again on Friday with the front Nymex futures contract closing at $36.79 a barrel – its lowest close since mid-March. The reason for the weakness is twofold. First, for the third time in nine months, the price of crude failed to break the 200-day moving average which reminded many bulls this is still a bear market. That encouraged more selling. The second reason, the Friday specific reason, is that Bloomberg revealed that – unsurprisingly given the face-off in the Middle East – that the Saudis won’t agree to a production cut unless the Iranians are part of the deal.

6. And it’s a big week ahead for markets and traders – here’s my diary of the key events. The RBA is the key local highlight but retail sales to be released today are also important. Offshore there are a raft of Fed speakers and Janet Yellen joins a panel with her three predecessors to round out the week Friday. Here’s my diary of all the key data and events for the week.

And here is Akin Oyedele with Business Insider New York’s take on the week ahead – with a naturally US slant.

Key data for the past 24 hours (with thanks to BNZ markets)

JP: Tankan large manuf index, Q1: 6 vs. 8 exp.
CH: Manufacturing PMI, Mar: 50.2 vs. 49.4 exp.
CH: Non-manufacturing PMI, Mar: 53.8 vs. 52.7 prev.
CH: Caxin manuf. PMI, Mar: 49.7 vs. 48.3 exp.
EZ: Manufacturing PMI, Mar F: 51.6 vs. 51.4 exp.
UK: Manufacturing PMI, Mar: 51.0 vs. 51.2 exp.
US: Change in non-farm payrolls (k), Mar: 215 vs.205
US: Unemployment rate, Mar: 5.0 vs. 4.9 exp.
US: Participation rate (%), Mar: 63.0 vs. 62.9 exp.
US: Average hourly earnings (y/y%), Mar: 2.3 vs. 2.2 exp.
US: ISM manufacturing index, Mar: 51.8 vs.51.0 exp.
US: Construction spending (m/m%), Feb: -0.5 vs. 0.1 exp.

You can catch me on Twitter.

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

Bellamy’s Australia (BAL: ASX)

A substantial portion of the infant formula sales into China made from companies like Bellamy’s; Blackmore’s and a2Milk are made online via websites outside China.

Tax changes to catch these sales have long been seen as a risk factor. Last week, China announced an 11.9% sales tax will apply to goods bought from foreign websites. At the same time, however, it will scrap a 10% parcels tax on goods valued at more than 500 yuan. Bellamy’s CEO, Laura McBain is quoted in the press this morning predicting that demand for their product will continue to grow strongly and that they are very comfortable about managing these tax changes.

$9.00 continues to look like a potential chart support zone for this stock. It would be a 61.8% Fibonacci retracement of a text book looking 5 wave advance. For good measure the 200 day moving average currently intersects around this level as well.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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