6 things Australian traders will be talking about this morning

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It’s funny how sentiment can turn quickly in markets but the overnight price action in the S&P 500 and the Dow, and commentary from many sources in the US suggests that stocks might be running out of steam for this rally.

Certainly crude oil’s continued collapse helped feed that notion and it’s left the September SPI 200 contract down 21 points this morning after yesterday’s 25-point rally on the ASX 200.

Elsewhere the US dollar stabilised but the Aussie dollar has come under heavy selling pressure as commodities fell and traders position before the expected RBA rate cut today.

Here’s the scoreboard (7.24am):

  • Dow: 18404 -24 (-0.15%)
  • S&P 500: 2170 -3 (-0.13%)
  • SPI 200 Futures (September): 5,525, -24 (-0.4%)
  • AUDUSD: 0.7530 -0.0065 (-0.85%)

The top stories

1. The Aussie dollar is collapsing in the lead up to today’s RBA board meeting. We’ll know the results of the will they, won’t they argument at 2.30pm today when RBA governor Stevens releases his statement. But it’s clear that with commodities a little lower overnight and the bank expected to cut, AUDUSD traders are taking some money off the table. That means that after a foray above 76 cents yesterday the AUDUSD is down 0.84% at 0.7531.

My view is the RBA doesn’t need to cut. But I have been persuaded by Jo Masters from the ANZ that because the risks of a policy mistake are so low as to be negligible, and because it might help cap the Aussie dollar’s potential rally, that the RBA should cut today. Additionally I think it clears the deck for Phil Lowe to then put his own stamp on the RBA once governor Stevens moves on.

We’ll see. In the meantime here’s David Scutt’s 10 second primer of all you need to know about today’s decision.

2. The manager of this $8.5 billion hedge fund has a great take on why a bell is ringing for stocks. The Fed recently said that stocks are overvalued on a PE basis but that based on bond metrics that’s not so much the case. But while low bond rates might support stocks it doesn’t justify them.

That’s the message in a great letter to investors from Richard Maraviglia and Matt Barkoff, who are portfolio managers on Carlson’s Black Diamond Thematic fund. They say: “The valuation of the stock market is being set by unreliable price indicators such as bonds.” It’s the Business Insider markets must read of the day.

3. That’s a structural view but tactically Goldman Sachs agrees – sell stocks, the bank says. Goldman strategist Christian Mueller-Glissmann moved his team’s portfolio weighting recommendation on stocks to “Underweight” from “Neutral”, effectively giving clients the green light to sell down some of their stock holdings.

It’s a 3-month view, so it’s tactical. Myles Udland has more here.

4. Crude oil’s just collapsed another 4%. Crude oil dipped below $40 a barrel in WTI terms overnight with a fall of 3.8%. That comes on top of the 16% fall in July. What the catalyst might be for an end to the selling is hard to see right now, according to Barclays’ Michael Cohen and his team who said in a note overnight that the usual summer drawdown in inventories hasn’t happened because crude oil’s “drain is clogged”.

Okin Oyedele has more here.

5. But worries about the global growth outlook might be misplaced. This is interesting. Maybe it’s not all bad news for the global economy after all. Or maybe at least the worries are misplaced and don’t reflect improving conditions. Gavyn Davies, writing in the FT, is wondering if the global economy might finally have reached escape velocity based on the latest Fulcrum nowcasts of global activity (nowcasts are attempts to determine levels of GDP and economic growth from coincident economic releases in real time rather than wait for the lag of official economic releases).

“The latest estimate shows global activity expanding at an annualised rate of 4.1 per cent, a marked improvement compared to the low point of 2.2 per cent recorded in March, 2016,” Davies wrote.

6. Goldman Sachs says Australia will only win 7 gold medals and finish 11th at the Rio Olympics. Australia’s chef de mission Kitty Chiller says Australia has an aspirational goal of “15, maybe even 16” gold medals at the Rio Olympics. That’s double the number we won in London.

But the boffins in Goldman Sachs economics team think Chiller, and the nation, are going to be disappointed. Will Martin reports To come up with the ranking, bank researchers used thousands of data points on everything from the macro-economic environment of a country to how well it has performed in previous Olympics’ before putting together their predictions.

Their verdict? Australia to win 7 gold, the same as it did in London.

Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Fonterra maintains milk price forecast
CH: Manufacturing PMI, Jul: 49.9 vs. 50.0 exp.
CH: Non-manufacturing PMI, Jul: 53.9 vs 53.7 prev.
UK: Markit PMI manufacturing, Jul F: 48.2 vs. 49.1 prev.
US: Fed’s Dudley: market underestimates future rate hikes
CH: Caixin manufacturing PMI, Jul: 50.6 vs. 48.8 exp.
US: Construction spending (m/m%), Jun: -0.6 vs. 0.5 exp.
US: ISM Manufacturing, Jul: 52.6 vs. 53.0 exp.

You can catch me on Twitter or at AxiTrader where I am the Chief Market Strategist.

And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day

Aristocrat – A US Dollar in the Slot

Forget Pokemon Go – have a look at pokie manufacturer Aristocrat (ALL). After a trading update in May it’s rocketed from $10.50 a share to an eight year high above $16 in trading yesterday. This outstrips Nintendo’s Pikachu inspired 30% gain as at the close on Friday night.

The gains are all the more remarkable given the likelihood of the Nick Xenophon Team gaining three federal Senate seats. Alert traders may recall that NXT’s original name was the No Pokies Party, and Xenephon is already tapping a deeply puritan vein of anti-gambling sentiment, despite the fact writs are not yet declared.

Why is Aristocrat going up? The answer is in strategy. In Australia, ALL is selling outright rather than leasing, reducing exposure to any legislative restrictions. More importantly, ALL has diversified very successfully into the US. The Australian devised multi-line machine is taking Las Vegas by storm, and ALL is tipping a 68% increase in profits year on year.

The chart suggests players could be better off buying ALL shares than playing their machines:

Michael McCarthy, chief market strategist, CMC Markets

You can follow Michael on Twitter @MMcCarthy_CMC

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