Stocks reversed their previous night’s reversal as manufacturing PMIs once again worried traders about the state of the global economy. Commodities slid in sympathy and after a period of acute weakness in European trade the US dollar rallied back sharply.
That’s left the Aussie dollar down below 75 cents and the SPI 200 down a substantial 63 points after yesterday’s 110-point rally on the ASX 200 physical market.
The banks had an amazing day yesterday with the ANZ leading the charge higher even though it had a big miss on its earnings. Was the catharsis of what looked like a deck clearing exercise by new CEO Shayne Elliot all the market needed?
We’ll know more today once the NAB releases its results.
Here’s the scoreboard (7.49am):
- Dow: 17,750, -140 (-0.78%)
- S&P 500: 2,063, -18 (-0.87%)
- SPI200 Futures (June): 5,292, -63 (-1.2%)
- AUDUSD: 0.7484, -0.0179 (-2.33%)
Now, the Top Stories
In case you’re already Budgeted out I’ve made it item 6.
1. The Aussie dollar was slammed after the RBA rate cut and the US dollar surged last night. The RBA delivered a masterful statement yesterday when it cut rates to 1.75%, a modern day low. The wording was perfectly pitched so that even though the governor didn’t give an explicit easing bias, traders read one.
That helped the Aussie collapse initially to 0.7590, from around 0.7715/20 just before 2.30pm, and then after finding some support amid European US dollar selling, the Aussie has now collapsed another 100+ points to 0.7482 – a loss of 2.4% in the past 24 hours and the bias looks lower for the moment.
The RBA will be pleased.
In other RBA news:
- The first economist to predict lower rates in Australia says the RBA will cut again soon.
- What economists are saying about the RBA rate cut – and what the bank will do next.
2. Stocks are down again and BAML says it’s never seen investors rush to sell stocks like this before. The stock market rally has stalled over the past few weeks. It’s lost momentum and positive catalysts. Clearly stocks haven’t collapsed but the diminishing upside impetus tells us all the news, good and bad, is priced in.
So it’s really interesting that Akin Oyedele reports that BAML says investors are rushing for the exits. Equity and quant strategist Jill Carey Hall said the firm’s institutional clients were net sellers of stocks for a 14th straight week.
That’s the longest such streak the firm has ever seen.
Now you can be either glass half full, all the selling and the market is still pretty strong, or glass half empty, the selling is just a precursor to deeper falls. But either way, BAML data just shows how tough 2016 is for traders and markets.
3. The St Louis Fed’s head of research has an epic takedown of negative interest rates and explained why they won’t work. For all the pieces I’ve written recently, this one is the most interesting. That’s because intuitively I felt like negative interest rates were a dumb idea but I just couldn’t put my finger on why.
But in a blog post yesterday, Christopher J. Waller, executive vice president and director of research at the St Louis Fed, explains exactly why my intuition is right. Negative interest rates work like a tax and taxes, he says, can hardly be viewed as stimulatory policy. I’ve got more here.
And speaking of negative rates. Everyone’s talking about this insane chart that shows the percentage of bonds yielding less than zero.
4. This hedge fund manager says talent coming into the market stinks – ahem, maybe an MBA and an Ivy League education isn’t enough. I’m really passionate about this one. I knew I wanted to be a dealer when I was 14 and a month before my 19th birthday in 1988 I was sitting at my desk in the Westpac dealing room. No degree, just a passion for markets. Since then I’ve got my undergrad in banking and finance and my master in applied finance. I also made a gazillion dollars for the companies I’ve worked for as a trader, fund manager, strategist, and treasurer.
But I would never get a chance – not like that anyway – in 2016. So when I see lords of finance like point72’s Steve Cohen say “Frankly, I’m blown away by the lack of talent. It’s not easy to find great people. We whittle down the funnel to maybe 2 to 4 percent of the candidates we’re interested in. Talent is really thin,” I wonder if the diversity in what is the finance gene pool has just been whittled away by a focus on background, schools, and qualifications.
Those of you reading at fund managers and bank dealing rooms will know exactly what I mean. Here’s an idea. Maybe we can use the Australia government’s internship – PaTH – program and get some of that diversity back. It won’t happen but some of these gals and guys would make great sales people and traders, folks.
5. After a couple of months of improving PMIs, the data is sliding again. Last night, GBPUSD climbed above 1.47. But the release of the weaker than expected PMI data helped sterling turn around and it’s back at 1.4550 this morning. Will Martin reported that British manufacturing is at its worst in 3 years — and there is a “deep unease” in the sector.
Yesterday, David Scutt reported that China’s manufacturing sector continues to splutter as well. That’s one of the more prominent reasons I’m reading in commentary this morning as to why stocks and oil fell overnight.
Either way, a big part of the market’s recovery since the Feb lows was data beat expectations. That’s changing again, and markets could slide with the data.
6. Budget wrap. Scott Morrison might just have pulled off something remarkable last night. Not only did he deliver a budget that most commentators are giving grudging respect to, but he delivered the document in a manner that just screamed “safe pair of hands”. Sure, the Opposition will disagree, but the narrative is very different to many of the budgets we’ve seen before and Joe Hockey’s hamfisted effort in 2014.
Here’s a wrap of some of the key articles we’ve published on the budget that will impact the economy and markets:
- BUDGET 2016: Here’s what you need to know
- HERE THEY ARE: The economic forecasts vital to ensuring Scott Morrison’s budget goes to plan.
- WARREN HOGAN: The budget strategy now rests on the spending of Australian households
- The government has introduced a $50 billion infrastructure plan.
- Two charts showing why Australia can relax about its AAA rating – at least for this year.
- It’s baby steps, but the government is finally trying to make our retirement system fairer.
And my look at the impact on the budget from a behavioural economics perspective. Scott Morrison has framed this document very well and he might just nudge Australian business and consumers in the right direction.
Key data for the past 24 hours (with thanks to BNZ markets)
AU: RBA cash rate: 1.75 vs. 2.0 exp.
CH: Caixin manufacturing PMI, Apr: 49.4 vs. 49.8 exp.
UK: Markit manufacturing PMI, Apr: 49.2 vs. 51.2 exp.
AU: Federal Budget: No surprises
NZ: GDT dairy auction, average prices: -1.4%
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And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Now that’s a candle!
The 10% trading range in ANZ yesterday says it all. Volatility is the name of the game in the stock market and bank shares in particular.
While, the rate cut no doubt helped yesterday’s dramatic turnaround, it seemed mainly about differing assessments of ANZ’s profit result. At the end of the day its dividend cut and write downs were just prudent housekeeping in response to changed circumstances already well understood. This is the way the market ended up viewing things. In fact, fresh news on the underlying business was no worse than expected. Bad debt provisions were actually a little better than anticipated. The market also liked the fact that Mike Smith’s Asian strategy was being further de-risked, with loans to mid-tier firms being limited.
Chart resistance is around $25.40. This includes the established trend line and the 78.6% Fibonacci retracement. Above that is the previous high and 200 day moving average around $26.30.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC