In a surprise move, OPEC has agreed a deal to cut more than 700,000 barrels a day of production.
That ignited a huge rally in crude prices which were up around 6% and that in turn saw the energy sector power the S&P 500 to a half a per cent gain by the close of trade.
That’s also propelled commodity currencies a little higher against the US dollar with the Aussie up near 77 cents again and the Canadian dollar pushing higher also. The moves also have futures traders on the ASX excited enough to have taken the December SPI contract 41 points higher overnight.
That points to a great day for the local stock markets and the technical signs suggest it might be even better.
Gold is a little lower and breaking down while copper is up.
Here’s the scoreboard (7.57am):
- Dow: 18339 +111 (+0.61%)
- S&P 500: 2171 +11 (+0.53%)
- SPI 200 Futures (December): 5,442 +41 (+0.8%)
- AUDUSD: 0.7688 +0.0022 (+0.28%)
The top stories
1. The CBA is raining almost $4 billion in dividends on shareholders today. It’s dividend payment day at the CBA today and the bank told me yesterday they are about to pay $3.808 billion in dividends shared across “more than 800,000 Australian households owning CBA shares”.
The CBA disbursement is part of the estimated $7 billion in dividend payments CommSec estimated would be paid this week with another $4 billion from various companies next week. That’s a massive cash injection into the economy. Some of that will be used for retirees to live on, but some will be recycled back into the stock market.
2. It should be a great day on the ASX 200 today. After struggling in a 40-50 point range for the past four days, the ASX looks set to soar today if the futures traders are correct. Not only is the CBA raining cash on shareholders, the energy stocks will catch an updraft on the back of oil’s rally, the big miners are likely to continue their overnight rally, and the technical backdrop supports a move toward the 5450 region futures are suggesting and perhaps even 5500 in the days ahead.
And of course even just a cursory catch up to the moves in the S&P might suggest a move toward 5500 as well.
3. Oil has surged close to 6% on the back of an OPEC deal to cut production – the first deal since 2008. To almost everyone’s surprise OPEC has come to an agreement to cut production by around 700,000 barrels per day, the Iranian Oil Minister Bijan Zanganeh confirmed to Reuters.
That’s the first deal since 2008 to cut production and it’s driven prices sharply higher with West Texas up 5.6% to $47.16 a barrel and Brent up at $48.72 for a 5.98% gain. There are a few things worth noting on this. Those who say that OPEC is only 40% of global production now and will thus not be able to move the price needle are intellectually inconsistent when they also say the much smaller US shale oil production will ramp up production and drive prices lower again.
My sense is prices will indeed rise but time will tell on that one. That said, we should all hope OPEC does has some success and can drive prices into the mid $50 region in time. The globe will get an inflationary pulse as a result, which might aid central banks somewhat in their attempts to influence inflation expectations, consumption and the velocity of money across the planet.
4. The German government denied it’s about to bail out Deutsche Bank and Mario Draghi says the bank’s woes are not his fault. An article in German weekly Die Zeit said that the German government is looking at a plan to bail out Deutsche Bank including the possibility of following former US treasury Ssecretary Hank Paulson’s 2008/09 play book by taking a big stake in the bank. But Germany is denying that it is preparing the bailout, Will Martin reports.
My bet is that pragmatism in the current economic and political environment is likely to win out in the end. That means, like Paulson, Germany will do what it needs to do if it needs to do something.
But don’t blame Mario Draghi for Deutsche Bank’s woes. Appearing in the lion’s den at the Bundestag, Draghi said he didn’t agree rates had hurt the bank saying that “if a bank represents a systemic threat for the euro zone, this cannot be because of low-interest rates. It has to do with other reasons.”
5. Dueling US hedge fund billionaires give their views on “bubbles”. Legendary hedge fund titan, and founder of the Tiger hedge fund, Julian Robertson, says that the bank-fueled bubble will end in chaos.
“I know the Federal Reserves all over the world are trying to ensure prosperity, but in doing so I think they are ensuring a huge bubble which will be pricked and we will all be hurt by it,” Robertson said.
But Oaktree Capital’s Howard Marks isn’t so sure. Linette Lopez reports Marks said: “You have to proceed with considerable caution … but I don’t think we’re in a bubble…I think that bubbles are connoted by extremely high valuations and bubble thinking.” That implies the wall of worry stocks are climbing and all the uncertainty has a protective quality. Let’s hope so.
6. A big Wall Street CEO just predicted a Trump presidency. I wrote a piece yesterday picking up former US treasury secretary Larry Summers’ twin assertions that technology has been destroying jobs for decades and that by 2050 around one-third of men will be without work. Viewed through this prism, it’s easier to see why we have seen traditional voting patterns break down and the rise of populist parties and candidates like US presidential hopeful Donald Trump.
So it’s worth noting, particularly given market moves since traders and investors decided Hillary Clinton won the presidential debate earlier this week, that Ken Moelis, CEO of investment bank Moelis & Company said that companies and people are “desperate” for a change.
That seems to be the global trend.
Key data for the past 24 hours (with thanks to BNZ markets)
GE: GfK consumer confidence, Oct: 10.0 vs. 10.2 exp.
US: Durable gds orders (m/m%), Aug P: 0.0 vs. -1.5 prev.
And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day
Oilsearch spike lows
The worst sector in trading yesterday was energy, following a tumble in oil prices. (At the moment oil prices don’t rise or fall, they roar or flop). Yet gas producer Oilsearch managed a gain. Yes, it announced the start of a biomass fuel project, an important strategic development, but that’s a $15 million project for a $10 billion company. What gives?
The answer may be technical. After a sustained period of pressure, the OSH share price may have turned the corner on the daily chart below. Five straight days of gains, a “rounding bottom” formation and a MACD that crossed upward well below the zero line are all possible technical buy signals.
In my view OSH is a prime long term investment. If gas is the answer in a carbon constrained world, Woodside and OSH should be on investor radar. Note how the last four lows are all “spike” lows. The share price slides to a point, but once it turns it moves rapidly higher. This may be an indication of investors willing to pick up OSH at bargain prices for the long term- and might be buying right now.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC
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