The headlines have been grabbed by the news the EU has said Apple owes billions in back taxes. But from a market point of view, the big news overnight is the move higher in the US dollar.
That has knocked the Aussie dollar back to 75 cents, driven gold back to support and pushed oil lower once again. That strength in the US dollar comes after more data seemed to confirm that consumers and the employment markets remain real sources of strength overnight.
But stocks in the US were only down a small amount continuing the recent run of very quiet trade. That’s suggested to SPI traders that the ASX might make up some of yesterday’s fall with September futures up 6 points. But the failure at 5500 yesterday, and the selling in global mining stocks overnight, could weigh on price action today.
Here’s the scoreboard (7.50am):
- Dow: 18454 -48 (-0.26%)
- S&P 500: 2176 -4 (-0.2%)
- SPI 200 Futures (September): 5,465, +6 (+0.1%)
- AUDUSD: 0.7508 -0.0069 (-0.91%)
The top stories
1. The newest RBA board member Ian Harper says now is not the time for the government to rein in spending. Given all the warnings from central bankers that monetary policy alone can not rescue individual or the global economy it would be surprising to hear an RBA board member say the government should rein in spending. But given all the debate about the path of Australia’s debt and deficits it still sounds strange to hear the RBA’s newest recruit, Professor Ian Harper from CEDA, say just that.
And he went further to suggest it was part of the reason Australia was not faced with a recession at the moment. I’ve got more here.
2. The EU says Apple needs to pay more tax – what you need to know.
- The EU has ordered Apple to pay up to $14.5 billion in taxes.
- This chart explains Apple’s tax structure in Europe that led to the $14.5 billion ruling.
- TIM COOK: “The European Commission has launched an effort to rewrite Apple’s history in Europe.”
- Apple defended its Irish tax-minimising operation using a classic photo of Steve Jobs in Cork
- Apple’s response can be summarized as: You can have taxes or you can have jobs, but you can’t have both.
- Ireland’s finance minister doesn’t want to ask Apple for the $14.5 billion.
- Here’s just how big $14.5 billion is to Apple.
- Apple has told investors its $14.5 billion tax bill won’t have any near-term impact.
3. The Aussie is lower and US dollar stronger after better data and US Fed vice chair Stanley Fischer’s comments overnight. The Aussie dollar is around 70 points lower than where it was yesterday morning on the back of the renewed vigour in the US dollar. That’s pushed the AUDUSD down to 0.7508, driven USDJPY up to 103 and pushed the euro back toward 1.11. The reason, mostly, appears to be that forex traders are taking the Fed’s threats about a September rate hike a little more seriously than maybe bond and stocks traders are.
Last night in an interview with Bloomberg TV Fed vice chair Stanley Fischer pretty much guaranteed one hike and said the second one is dependent on the data. “I don’t think we know at the time we start whether it’s won and done or several. It depends entirely on what’s happening in the economy.” But to get two you have to start sooner rather than later. Just saying.
Another reason things are moving the Fed’s way can bee seen in overnight data which showed the Conference Board’s consumer confidence index jumped to 101.1 in August, the highest since last September. The share of people saying jobs were “plentiful” increased from 23% to 26%, the highest since January 2008.
4. UBS: We are witnessing the end of the credit cycle and a crash is coming. You need to read this with reference to item 5 below. But Ben Moshinsky reports global investment bank UBS says the risk of a stock market crash is growing.
The era of cheap debt and plentiful liquidity is slowly drawing to an end, according to a team of UBS analysts, led by Paul Winter, making it harder to use credit to juice corporate profits. “Equities in general are trading at very high multiples, which makes sense given the level of bond yields, however, this doesn’t appear to be pricing the level of macro risk that we’re witnessing in the market,” UBS’s analysts said.
5. Doomsayers are mostly wrong and have a ‘corrosive effect on trust in the expert community’. Whether it is the demise of the Australian economy, Australian housing, the impact of Brexit, Grexit, US budget battles or any of the thousands of market crashes that never come, doomsayers seem to command the headlines. So I found this article in the Wall Street Journal overnight – When Economic Doomsayers Stumble – really interesting and recommend you have a read.
Philip Tetlock, an expert in political forecasting at the University of Pennsylvania, told the Journal that “Forecasters often feel incentivized to pump up the probability of worst-case scenarios” and in doing so grab a headline in the knowledge most folks will forget the wrong calls and only remember the “right” ones. “Over time, this has some corrosive effect on trust in the expert community,” Tetlock said. Yes indeed.
6. Risk parity is a most interesting approach to investing – it was invented by Bridgewater’s Ray Dalio. Here’s the background. Bridgewater’s all-weather portfolio sets the standard in trying to balance risk and return in all market environments and its approach has been replicated across the industry by some other large funds. It sounds like a nebulous “cake and eat it” approach. But in the hands of Bridgewater’s team, it’s up 10% so far this year.
Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Building consents (m/m%), Jul: -10.5 vs. 21.9 prev.
JP: Household spending (y/y%), Jul: -0.5 vs. -1.5 exp.
AU: Building approvals (m/m%), Jul: 11.3 vs. 1.1 exp.
EC: Economic confidence, Aug: 103.5 vs. 104.1 exp.
GE: EU harmonised CPI (y/y%), Aug P: 0.5 vs. 0.3 exp.
US: Consumer confidence, Aug: 101.1 vs. 97.0 exp.
And now from CMC Markets’ Michael Mccarthy is today’s Stock of the Day
The Coca Cola Comeback Kid
Over the last three years, the local production arm of Coca Cola has almost halved in share price. Coca-Cola Amatil (CCL) touched lows close to $8.00 just two months ago, and has bounced by more than 20% since. The half year result announced last week added to the impetus, pushing CCL to its 2016 high. Is it too late to buy?
The short answer is no. CCL’s investment profile is evolving. Formerly an ex-growth market incumbent, it might now be viewed as a superior growth exposure to near neighbour Indonesia. This potential change in earnings profile could have profound implications for the share price.
Now take a look at the longer term, weekly chart. Judged by share price history, CCL may have a lot further to run. Chartists may get excited about the break of resistance at $9.50, with $11.00 the next major overhead. A reconnection with that higher trading zone may eventually see CCL heading back towards the highs, especially if there is a pick-up in local consumer activity as well as increasing regional penetration.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC