Stocks in Europe bounced sharply as they played catch-up to the previous day’s recovery in the US and the focus turned to next week’s ECB meeting. However, markets were quiet stateside in thin pre-Thanksgiving trade, which leaves the SPI 200 indicating a small negative start to trade here in Australia.
Eleswhere, the euro crashed to a new post-March 2015 low of 1.0567 before recovering on weakish US data. The Aussie is holding in, as is the oil price. Copper dipped back a little and iron ore was a little weaker.
First the scoreboard:
- Dow: 17814.07, +3.31, (+0.02%%)
- S&P 500: 2,090.44, +1.01, (+0.06%)
- SPI200 Futures: 5,194, -11 (+0.2%)
- AUDUSD: 0.7254 +0.0002 (+0.01%)
And now, the top stories:
Thanksgiving Turkey. In his book “The Black Swan”, Nassim Taleb tells the story of the 1001 days of a turkey’s life to nicely illustrate his concept of what a black swan really is. BI US colleague Myles Udland retold the story overnight and highlighted that while the turkey story is a neat illustration of the concept Taleb, like RBA governor Stevens two nights ago, it’s actually taking a shot at forecasters. Or at least those who believe they can forecast with ultimate accuracy. As Myles says: “It isn’t that we can’t know the future, but that we delude ourselves into thinking we can, making forecasts about events that are inherently unforecastable and giving us false belief about what can or will or might happen in the future.” You can find the full article here.
US inflation black swan. The Fed is going to tighten on December 16. That much they have communicated and that much the market believes. But, while zero interest rates remain completely inconsistent with the level of growth in the US, inflation is another story, it seems. It just won’t go up. That complicates things for the Fed and the release last night of a key inflation metric followed by the Fed’s Bullard showed inflation heading down, not up. Highlighting the stickyness of inflation, the NAB’s co-head of global currency strategy Ray Attrill wrote this morning that: “The data highlights have included some disappointment that October personal spending – in both real and nominal terms – fell short of the 0.2% expected outcomes at 0.1% for both, with the PCE deflators (whether headline or core) also 1/10% lower than expected (headline is just 0.2% y/y, and core +1.3% – the latter unchanged from September).” One and done from the Fed? The US dollar won’t like that. The Australian dollar could roar.
Australia’s Big Banking own goal. Brian Johnson is regarded in many circles as Australia’s best banking analyst. He’s out with a new 282-page report on the sector this week and he draws an interesting parallel between the troubles at Woolworths – and the collapse in its share price – and the big banks. It all stems from the focus on super-high RoEs which “feels good for now it could yet hurt in the longer term given.” He’s identified four risks and says one of them is the banks become viewed not as an oligopoly, but a cartel. You can read more here.
BHP dividends. Speaking of bankers. Former NAB boss Don Argus had a stellar post-bank career including a stint as chairman of BHP. He was the architect of the company’s progressive dividend policy. But he’s told the AFR today that: “It was never meant to be a forever thing, it was not meant to be written in stone.” Crucially, he added that “because the policy has held for so long does not mean that a board has to deliver on a promise that it can’t afford”. BHP shares are under $20 for the first time since the GFC as the company struggles with weak commodity prices and a loss of investor confidence. Some see the dividend policy as a way to retain what confidence there is. But Argus’s intervention is likely to increase the pressure on BHP to abandon what looks like a very strange policy for a mining company.
New South Wales’s pile of cash. The normally sleepy world of Australian semi-government bond trading came alive yesterday after the announcement that New South Wales had sold the electricity poles and wires for $10.3 billion. TD Securities’ Prashant Newnaha said in a note that: “As part of the proceeds, A$2.8b of Transgrid debt is to be repaid, which is sitting on TCorp’s balance sheet. In the hours following this announcement, TCorp announced a Benchmark Bond buyback totalling $600m.” Which is where the excitement came in. Skye Masters, NAB’s head of interest rate strategy, reports this morning that: “The announcement of the buyback provided a bid to Tcorp paper late yesterday afternoon.” That, she said, means NSW T-Corp spreads are “back near recent lows and pre GFC levels”.
The ECB is a rudderless ship. Via Reuters this morning comes the news of an incredibly scary time at the ECB. Scary because it seems like, just a week before the December 3 meeting and expected easing, the ECB hasn’t got a plan. Based on the story, they are working on a plan, but they canvass so many different options it’s hard to have any confidence they know what they are doing. Take these comments as examples:
“They are still trying to figure out what will be in the package. A lot of people have different views.”
“We have deflation, so you have to do something. How this all looks in a few years, nobody knows.”
No surprise that euro plumbed the lows. Although it is surprising perhaps that it then recovered. This is the second most important central bank in the world, folks.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Poker machine and gaming manufacturer, Aristocrat released its results yesterday. They beat consensus expectations with good revenue in most regions including the US which benefited from the acquisition of Video Gaming Technologies.
However, it was a bit of a wild ride for the share price. The stock ended up pretty much unchanged after being up more than 4% at one stage. This made things interesting from a chart point of view. Yesterday’s high looks it might form a neat trend channel resistance that could be difficult to get past for some time.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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