Wall Street was stronger overnight on a combination of higher oil and stronger data from the gigantic US service sector.
That’s helped push bond rates a little higher in the US but it has also provided a good lead for the local share market today. Futures traders on the ASX have taken the December SPI 200 contract 25 points higher suggesting a strong open.
Strength in the US was centred on energy and financials, which underpins the futures market lead even though both Westpac and NAB CEOs are up before parliament today.
On forex markets, USDJPY continues to break higher and is at 103.50 this morning. The Australian dollar fought back from a dip back toward last week’s low, trading at 0.7590 at one point but at 0.7617, it’s largely unchanged over the past 24 hours.
Oil was higher, WTI up 2.2% and Brent up 1.8%, after another big draw in inventories and further expectations that an OPEC/non-OPEC deal may actually get done. Gold is largely unchanged – so the gold miners may have a day of relative calm after yesterday’s hammering.
On the docket today is Australian trade data.
Here’s the scoreboard (7.41am):
- Dow: 18281 +112 (+0.62%)
- S&P 500: 2160 +9 (+0.43%)
- SPI 200 Futures (December): 5,458 +25 (+0.5%)
- AUDUSD: 0.7617 -0.0004 (0.0%)
The top stories
1. Here’s a really good reason why business investment could be low and stay low for a very long time. This blew my mind when I read it. Reuters had a neat report overnight of the way technology is changing the business landscape. It looks at a German-based baseball cap manufacturer which has put in new equipment which “can immediately meet any customer order. That cuts downtime and adjustment costs, boosting the firm’s margins.”
But the big deal for economic growth and central bankers, the paradigm shifting one when it comes to business investment, is that “now the equipment is in place, the business won’t need further investment for years”.
Stefan Moeller, the firm’s owner, told Reuters: “I can make just a single hat and switch design in a second, or make a thousand in a series. This is a new type of flexibility in the business and my product line has essentially become endless, so the only investment I have to make is in sales.”
2. Here are more signs the central bank experiment with negative rates and QE is nearing an end. On Tuesday night, fears that the ECB is going to taper its bond purchase program weighed on bonds and signalled that the ECB experiment with quantitative easing may be nearing its end. The BoJ has signaled a changed approach as well and now British prime minister Teresa May has put Mark Carney and the Bank of England on notice that she does not favour super low interest rates and quantitative easing. She said it was “the necessary emergency medicine after the financial crash, [but] we have to acknowledge there have been some bad side effects”.
Inequality of outcome from this policy was one of those as “people with assets have got richer… people without them have suffered”. That is a theme Minneapolis Fed president Neel Kashkari highlighted in a speech overnight where he said growth since the GFC (what he called the great recession) has “contributed to exacerbating the persistent and wide gaps in income among our country’s racial and ethnic groups”.
It reinforces notions that fiscal policy will be coming back to the fore. And as if on cue, Reuters reports news, via Handelsblatt, that sources say Germany plans to cut taxes by 6.3 billion euros a year.
3. Speaking of rates – US 10-years are trying to break higher and may be headed toward 2%. I’ll have a piece out later this morning discussing whether we could be at the end of the 35-year bond bull market but overnight we saw US, UK, and German 10s close higher once again.
In the case of the US, the rate hit, and stayed below, the 1.72% level which is overhead resistance and the trendline for this year’s downtrend. If it breaks, give it a few points and call it the recent high at 1.75%, and the chartists say it could run to 2%. Bloomberg reports a move to that level is now the view of both Goldman Sachs and JP Morgan.
4. Ugh, global growth is still weak but the world has a record $152 trillion in debt. Bob Bryan reports on the IMF’s latest take on global debt which, the fund says, has seen total nonfinancial sector debt hit $152 trillion. That’s the highest gross debt ever recorded. The debt-to-GDP ratio is also at an all-time high of 225%, up from 200% 14 years ago.
Yuk. Easy to service but potentially very hard to pay back in a low growth low rate environment. Bob has more here.
5. The IMF knows that the fall in global trade is about weak growth but it’s still pushing the barrow on populist policies. I was filthy when I read the part of the IMF’s world economic outlook which dealt with the slowdown in trade. That’s because while the fund’s own analysis showed most of the slowdown is due to the simple reality that growth on planet Earth has slowed down, they want to push a barrow and bang on about populist policies and protectionist measures.
I haven’t written it in this grumpy tone. But if you want to know the truth about the slowdown in global growth, I’ve got more here.
6. Quantamental investing is here. Rachel Levy has a great interview with billionaire investor Steve Cohens new research chief Matthew Granade, which looks at how the merger of fundamental research, big data style analytics, and alternative data sources to drive what’s now termed “quantamental” research.
It’s an interesting piece which suggests a very different type of trader, investor and portfolio manager in the future to the ones I worked with over my career – Rachel has more here.
BONUS ITEM: This one is too good to let slide.
The top one per cent has it easy and gets lots of unfair advantages says Nancy Folbre, an economist at the University of Massachusetts. That’s her attempt to refute a paper written three years ago by Harvard University economist Gregory Mankiw who says the 1% get their just desserts.
As the great Midnight Oil sang so many years ago – the rich are getting richer, the poor get the picture. Now you can read about it here.
Key data for the past 24 hours (with thanks to BNZ markets)
AU: Aig perf of services index, Sep: 48.9 vs. 45.0 prev.
JP: Nikkei PMI services, Sep: 48.2 vs. 49.6 prev.
AU: Retail sales, m/m, %, Aug: 0.4 vs. 0.2 exp.
UK: Markit PMI services, Sep: 52.6 vs. 52.2 exp.
EZ: Retail sales, m/m, %, Aug: -0.1 vs. -0.3 exp.
US: ADP employment change, Sep: 154 vs. 165 exp.
US: ISM non-mfg composite index, Sep: 57.1 vs. 53.0 exp.
US: Factory orders, Aug: 0.2 vs. -0.2 exp.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Newcrest Mining (NCM: ASX)
Gold miner, Newcrest closed down 5% yesterday but nearly 3% off its low.
The area around yesterday’s low looks an important chart point for Newcrest. It’s the 38.2% Fibonacci retracement of the whole rally from $10.55 to $27.20. A clear breach of this level could have traders looking for the next support level. The $18.50/19 area looks a candidate. It sees both the support of the former trend channel resistance and the 50% retracement level.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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