Even though the polls seem to suggest that Hillary Clinton is still the more likely of the two main contenders to win next week’s presidential election, stocks continued to dip in the US.
The impact was that after a benign day on the ASX with little net movement by the close of play, futures traders overnight are betting the ASX will fall again on the open this morning. The December SPI 200 is down 25 points this morning.
On currency markets, sterling ripped higher after the High Court said the UK Parliament gets a vote on Brexit and better than expected services data. The euro and yen are off their highs but the Australian dollar is hanging very tough and probably has its best chance to break resistance above 77 cents for ages in this current environment.
Gold remains strong as uncertainty keeps it bid. But nothing can halt the slide in crude it seems.
All eyes are now on the polls and US non-farm payrolls tonight.
Here’s the scoreboard (7.52am):
- Dow: 17930 -29 (-0.16%)
- S&P 500: 2088 -9 (-0.44%)
- SPI 200 Futures (December): 5,167 -25 (-0.5%)
- AUDUSD: 0.7683 +0.0025 (+0.33%)
The top stories
1. Here’s why markets are so dangerous right now. I tweeted a quote from Nassim Taleb yesterday which said “Never think a lack of variability is stability. Don’t confuse a lack of volatility with stability, ever”. I did that because of the way that markets in 2016 have alternated between periods of quiet and acute volatility.
So I was drawn to Bob Bryan’s article covering a note to clients from $25 billion hedge fund Highbridge Capital Management saying that these long quiet periods followed by extreme jumps in volatility is going to continue for the foreseeable future.
But their most cogent point is the one they make about market structure. They are talking about the lack of active trading impact on markets and causing these price gaps. It’s the very conversation I had with a 35-year veteran of forex markets yesterday.
2. And here is where Blackrock says the most dangerous place for you money is right now. Jonathan Garber sat down with Rick Rieder, BlackRock’s global chief investment officer of fixed income, to discuss markets and asked him where the danger lies right now.
Reider highlighted the warning you’ve read many times from many folks in this report over recent months. The risk is of higher yields and their impact on valuations.
“The combination of excessively low real rates and a large aging global demographic (which has been demanding yield/return) has produced a massive scramble for income globally. Such high levels of demand drive debt market valuations to extremes, leaving little room for error,” Reider said.
3. Sterling soared after the High Court ruled that Britain’s parliament has to vote before article 50 is triggered for Brexit. The British pound roared higher overnight and is back at 1.2460 this morning after some solid data, the Bank of England taking more easing off the table this year, and the High Court decision that prime minister Theresa May must get parliamentary approval before invoking Article 50, Adam Payne reports.
The key point is that traders, and those who brought the case before the court, are betting that this will mean a softer Brexit, not the more aggressive stance May had been leaning toward. Some even believe this makes it difficult for Britain to exit the EU at all. Certainly it delays the process.
4. Russia is loading up on gold – but it is probably not alone right now. Gold collapsed to $1050 an ounce in December last year as inflation looked dead and the yellow metal lost it’s lustre. But the increased uncertainty in markets we’ve seen in 2016 and the big bouts of acute pessimism lifted gold to $1380 after the Brexit vote.
It subsequently collapsed back to $1240 recently but it’s back up at $1300 as fear is back in vogue. But also in vogue is central bank gold buying, Jonathan Garber reports. The World Gold Council says central banks added a net 13 tonnes of gold to their stockpiles in September. But Russia was the big buyer, picking up 16.55 tonnes on its own during the month. That’s the 20th month in a row the Russian central bank has been buying.
With uncertainty still high, the chances of further gains in gold as central banks underpin support seem high.
5. Stop worrying about the $152,000,000,000 of global debt – we got this. It seems like we get a warning about global debt every other week. It’s going to all come tumbling down, or it’s the source of the next financial crisis and so on – the stream of warnings go. But David Scutt reports that Dario Perkins, chief European economist at Lombard Street Economics, is one person who isn’t all that perturbed, suggesting that it’s “also important to ask who has being doing the extra borrowing and how these debt securities have been distributed in the financial system”.
Scutty has more here. It’s worth a read and you might see a parallel in his thoughts with the way the RBA talks about debt in Australia.
6. Oil collapsed again overnight and traders are seeing a big red flag. WTI has broken the uptrend from the lows of 2016 but the team at Credit Suisse see some more troubling signs of more falls in the price of crude.
Jan Stuart and his team say that because of the contangion in the market a “large red-flag about near term global crude oil fundamentals”. Clearly, commercial market participants still ‘see’ things weakening. Akin Oyedele has more here.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Tegel fails to fly
There will be a lot of interest in the Ingham’s IPO next week but It’s not the only chicken float this year. Its smaller, New Zealand counterpart was listed in May.
Tegel produced an initial stag profit for investors but fell sharply a few weeks ago and is now trading close to its issue price. Some believe this selling may have been related to the upcoming Ingham’s IPO with investors looking to make room in their portfolio for another chicken stock.
Management comments at the recent AGM also created a bit of caution when they noted that Tegel had experienced soft pricing in the domestic market due to excess volumes although they characterised first half year sales as looking strong to date. These businesses are vulnerable to the pricing power of the big supermarkets which are major customers.
You can follow Ric on Twitter @ricspooner_CMC