It was another remarkably quiet night for US stocks which are trapped in a very tight range. But the oil price slide continues.
But the reality is that all eyes are on the Bank of Japan’s decision on monetary policy which will be released today.
Closer to home, the SPI futures are up another 8 points suggesting another positive day for the local market when the ASX opens at 10am. The Aussie dollar had a stellar run yesterday and into early Europe when the US dollar was weak. It hit a high around 0.7550 but it’s back near 75 cents now.
On commodity markets, iron ore is still surging, copper is higher, but gold dipped a bit overnight.
Here’s the scoreboard (7.27am):
- Dow: 18456 -16 (-0.09%)
- S&P 500: 2170 +3 (+0.16%)
- SPI 200 Futures (September): 5,525, +8 (+0.1%)
- AUDUSD: 0.7502 +0.0012 (+0.2%)
The top stories
1. BOOM – Australia’s terms of trade has stopped falling. It’s been a long time coming but data from the ABS yesterday on movements in imports and export prices shows that for the first time in 2 years Australia’s terms of trade has risen. The data supports the Aussie dollar at the margin.
But the fact that import prices fell 1% and are down 2.8% year on year could help the RBA decide to cut interest rates. I’ve got more here.
2. Right on cue, iron ore has popped above $60 a tonne. David Scutt reports iron ore jumped back above the $60 a tonne level for the first time since early May. Scutty says it has now rallied by close to 40% since the beginning of the year. If sustained, this will really change the conversation about the Aussie dollar.
3. The Bank of Japan might be about to signal a helicopter drop of cash on the Japanese economy. After 20 years of moribund growth and persistent low inflation, the signs are there that the Bank of Japan is about to break a central banking taboo and authorise “helicopter” money when it announces its interest rate decision today. That comes after prime minister Abe earlier this week signaled the government will be undertaking at 28 trillion yen stimulus package. In doing so, he has put direct pressure on the Bank of Japan to support that initiative by buying government bonds to finance it.
Javier Corominas, head of economic research at $53 billion currency fund Record in London, told Reuters: “It is a move to a world where central bank independence is de facto dead and where we have crossed the Rubicon.” He added: “If we do that it will just show that the scale of the problem is huge. At that stage why not monetize everything?”
Extrapolate what Corominas is saying a little further and perhaps traders will start to think we are the start of the next bull market for stocks.
4. Billionaire investor Howard Marks just dumped an ice bucket on most hedge fund managers. 2 and 20 – that’s the hedge fund fee mantra. It means that hedge funds charge 2% of assets as a management fee and an additional 20% of returns as a performance bonus. It’s how many hedge funds charge and how many hedge fund managers become gazillionaires. But Howard Marks, billionaire investor and co-founder of $98 billion alternative investment firm Oaktree, just tipped a bucket on the industry, its managers and its performance. Marks said:
When I first learned about hedge funds, which is probably in the 70s, there’re 10 hedge funds ran by 10 geniuses. And in 2004 I said today there are 5,000 hedge funds and I don’t think they’re run by 5,000 geniuses. Today we’re probably up to 10,000. The performance of the greatest hedge funds run by geniuses, and their closing, created a big umbrella over this industry, which permitted the other 9990 hedge fund managers to start hedge funds and command hedge fund fees.
5. Vanguard has just closed a US dividend fund because low rates are driving so many investors into the fund. Ever wonder why even with all the headwinds they face, Australian banks remain well bid? Well, it’s part of a global reach for yield. Interestingly though, a big part of that reach for yield is actually investors buying dividend stocks. But it’s becoming a crowded trade, it seems, with the Wall Street Journal reporting overnight that “Vanguard has stopped accepting new accounts in its $30 billion Dividend Growth Fund, the latest example of the popularity of income-generating investments in a world of ultra-low bond yields”.
Bill McNabb, Vanguard chief executive, said in a press release the company “is proactively taking steps to slow strong cash flows to help ensure that the advisor’s ability to produce competitive long-term results for investors is not compromised”.
6. Are we about to get a big spike in stock market volatility? Myles Udland reports that Ryan Detrick, senior market strategist at LPL Financial, noted on Twitter that Thursday marked the 11th-straight day the S&P 500 closed inside a 1% trading range, the first time this has ever happened, according to record going back 45 years.
Minsky taught us that stability breeds instability. So with the Bank of Japan out today and a host of GDP results to be released tonight, something might be about to give in US, and global, stocks.
The guys at Nautilus Investment research still think the move, when it comes, is to the topside.
Key data for the past 24 hours (with thanks to BNZ markets)
GE: Unemployment rate, Jul: 6.1 vs. 6.1 exp.
EZ: Business climate indicator, Jul: 0.39 vs. 0.17 exp.
GE: CPI, EU harmonised, y/y, %, Jul P: 0.4 vs. 0.3 exp.
US: Adv. goods trade bal., (US$b), Jun: -63.3 vs. -61.0 exp.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Emerging, dot.com company, Freelancer, released its results yesterday. These revealed a continuing trajectory of strong revenue growth.
Freelancer operates a website that connects employers and freelancers around the world. Ninety-five per cent of its revenue is sourced outside Australia. This reflects one of its core growth opportunities which is the rising education and skill development in emerging economies (no wonder wage growth is sluggish in developed economies). Freelancer’s net revenue increased 56% from $16.8m to $26.2m over the past year.
It’s getting close to being profitable, recording a Net Loss after tax of $0.1m for the latest half. Despite the loss it had positive cash generation of about $4m.
As the chart below shows, this stock has been one of this year’s market stars. It’s up 226% from its $0.52 low in November. It rallied sharply, breaking resistance the day before the profit release and encountered a bit of profit taking after the release yesterday.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC