6 things Australian traders will be talking about this morning

INCIRLIK AIR FORCE BASE, TURKEY: A pilot takes off in a F-15 fighter jet (Photo by Chris Hondros/Getty Images)

Geopolitics dominated much of European trade after the Russian fighter was shot down by a Turkish jet. That saw crude oil continue to rise and put European stocks under pressure. But after an early swoon, US stocks have recovered early losses and are now in the black for the day. That’s pointing to a mildly positive day on the ASX with futures currently up 15 points.

It also looks like another good start for the Aussie dollar which is the strongest of the G10 currencies this morning, back up at 0.7240. That’s the best Asian open this month. On commodities, the rout on the Shanghai futures market over the last two days had no resonance on Western exchanges and copper is sharply higher. But, iron ore is in the bin.

First the scoreboard:

  • Dow: 17,805.51, +11.46, (+0.06%%)
  • S&P 500: 2,089.43, +2.84, (+0.14%%)
  • SPI200 Futures: 5,249 17 (+0.4%)
  • AUDUSD: 0.7241 +0.0051 (+0.7%)

And now, the top stories:

Russian fighter jet shot down. While entirely predictable that Russia and Turkey might get into it in a military sense, the downing of the Russian fighter by the Turkish air force last night is the very definition of a “black swan” for markets. Europe reacted, crude oil perked up but then the US shrugged it off after President Obama, President Hollande of France, and the NATO leadership (remember Turkey is a member) called for de-escalation. So oil is off its highs, but at $42.94, still strong compared to a day ago with a rise of 2.85%. Traders will be watching this one closely in case it does in fact escalate. Russian President Putin has already called it “a stab in the back by accomplices of terrorists”. Watch that air-space.

The Australian dollar is uncommonly strong. Geopolitical trouble, a commodity rout, a strong US dollar, an RBA leaving the door ever so slightly ajar for another rate cut, and the prospect of a Fed tightening wouldn’t normally see the Aussie dollar as the strongest performer in the G10. But it is and it could keeping on trucking. I’ve attempted to explain why here.

RBA governor again warns about the hopelessness of forecasting. – Glenn Stevens gave one of his great speeches last night. He said he was disappointed that the Aussie dollar’s effects on the economy hadn’t come through as quickly as hoped and he also said the door is open for more rate cuts if needed. But he said markets should “chill out” over Christmas and see how the economy is in the new year. Stevens also gave a warning to boomer retirees to get their expectations in order about returns and the ability of dividends to continue to be paid out in the current fashion.

But the most interest part of his speech was the continuation of the theme that Alexandra Heath highlighted last Friday. That is, in a world of uncertainty forecasts are, well, pretty much really just guesstimates. I’ve covered the speech here.

S&P 500 to 3,500 anyone? Holding a diversified portfolio stocks for the long run is a core tenet of retirement saving. So the good news from Bank of America Merrill Lynch is that they reckon the S&P 500 is headed to 3,500. Sure we have to wait till 2025. But that’s only 10 years and the gain of 66% sounds enticing. That’s also good news for the ASX because the world that drags the S&P up there should drag the local market higher.

Not such good news though is Goldman’s call that stocks are going to go nowhere again in 2016 as they “tread water”. If they are right, it could be the hardest 1% ever made, and traders won’t want to face another year like this again next year.

Dodging a bullet, the commodity rout that wasn’t. If ever there could have been a real dislocation in commodity markets it was the past couple of days with commodity futures markets in China in a real funk. Yesterday, commodity prices on the Shanghai Futures Exchange had another wild ride. But with the exception of iron ore which is making fresh multi-year lows again, the weakness didn’t filter into other markets.

Indeed, CommSec chief economist Craig James wrote this morning that: “World oil prices rose in line with other commodities in response to a weaker US dollar and Middle East tensions.” And: “Base metal prices posted solid gains on the London Metal Exchange. Nickel rose by 5.7% with other metals rising by up to 2.5% with aluminium up the least (up 0.8%). The Comex gold futures price rose by US$7.00 an ounce or 0.7% to US$1,073.80 per ounce. Iron ore fell by US80c or 1.8% to US$43.40 a tonne.”

Could we be in for a bounce in oil? In the FT this morning is an interesting article about just how big a bet hedge funds have placed against rising oil prices.

The FT reports:

Hedge funds’ bets against the oil price have risen to the highest level this year ahead of next week’s Opec meeting, in the expectation the cartel’s most powerful members will stick with their policy of keeping output high.

A worsening global oil glut has seen speculative funds amass a position in New York and London equivalent to more than 3.5 days of global oil demand, which will make money if the price falls further.

I’m not so sure. Last week we saw clear signs the Saudis were starting to notice that oil was crashing again and then earlier this week they said they were willing to work with other producers to stabilise prices. If we get a production cut then boom, oil could soar.

It’s a non-consensus call but it’s the clearest risk to current market thinking, so in many ways it’s the path of least resistance.

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

Watpac (WTP: ASX)

Construction and mining services group, Watpac had their annual general meeting yesterday but that’s not what drew it to my attention. With John Bollinger, creator of the widely used Bollinger Band technical tool in Australia this week for a series of seminars, this looks a topical chart.

Watpac’s share price has rallied about 30% from its low in early September. This rally has been characterised by price crawling up the upper Bollinger Band with minor corrections starting from outside it. This is typical behaviour for strong up trends. If the share price continues to behave like this it’s a good sign.

However, the opposite also applies. If the price chart starts making trend peaks below the upper band this will be a sign of potential weakness. The Bollinger Bands would be telling us that variance from the mean has peaked. This behaviour often precedes a more significant sell off than those we have seen recently. If the peaks below the band also involve lower trading volume than the ones made above it that will be another reason to be nervous about this stock.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.