Fears about Italy washed away overnight as traders recognised that the result was as expected and Matteo Renzi did his best to smooth the transition to the new prime minister from his party.
That saw stocks in Europe rise neatly, although Milanese stocks fell 0.2%. US stocks also had a better night of it with the big four indexes up. In particular, the Russell 200 bolted 1.66% higher while the Nasdaq was up around 1%. The Dow and S&P 500, while strong, underperformed by comparison.
Locally, futures traders on the ASX are betting the market got it wrong with yesterday’s big fall and have marked the December SPI contract up 52 points suggesting a 1% gain when trade opens this morning.
On forex markets, the changed thinking on stocks was replicated with the euro which bounced all the way to 1.08 from the low 1.05s yesterday. The yen recovered from an acutely weak run toward 115 for USDJPY while the Aussie is higher but still stuck below 75 cents.
Elsewhere, Nymex crude oil has rejected another attempt to take out $52 and has dropped the best part of a dollar a barrel in the past couple of hours to sit back at $51. Gold is languishing at $1169 while copper and other base metals are higher. Iron ore might even be on the way back to $80 again.
Here’s the scoreboard (8.03am AEDT):
- Dow: 19216 +46 (+0.24%)
- S&P 500 2204 +12 (+0.56%)
- SPI 200 Futures (December): 5,448 +51 (+0.9%)
- AUDUSD: 0.7468 +0.0016 (+0.25%)
The top stories
1. If Sydney had its own central bank, cash rates would be at 3.25%, Melbourne 2.25%. Setting policy for such a diverse economy is a difficult task. By definition it means the RBA can never get the level of interest rates “right” for all the regions across Australia.
With that in mind the folks at SGS Economics and Research have deconstructed the drivers of Australian growth and reckon if Sydney and Melbourne had their own central banks rates would be sharply higher. I’ve got more here.
2. There is a big chance that Australia gets an ugly Q3 GDP release tomorrow. But it looks like business has already moved on and is optimistic about 2017. The interim Dun and Bradstreet Business expectations Index was released this morning and shows that Australian companies have put the flat spot of Q3 behind them and are optimistic about the future.
The BEI for Q1 2017 printed 21 which is 12.4 points above the 10-year average of 8.6 points. I’ve got more here.
3. This bull market in US stocks is already climbing a massive wall of worry. Just look at Business Insider this morning – we have Akin Oyedele quoting Raymond James CIO Jeffrey Saut saying stocks have reached a “buying climax” while Bob Bryan reports one of the biggest forces powering the stock market is stalling. Over at The Economist they ran an article pooh-poohing the bull market which says sell-side share analysis is wrong.
That’s just a tiny sample of what seems to me to be a common fare of “don’t trust the bull market”. Naturally I have no way of knowing the future. And readers of this column know I’m all in on stocks – so I might be biased. But there is still so much cash on the sidelines; I reckon it’s too early to say the bull has exhausted itself already.
4. The Chicago Fed president seems to have endorsed Trumponomics overnight. I’ve been fascinated to watch and read the comments by members of the Fed and FOMC family since Donald Trump won the election. I wouldn’t go so far to say they are auditioning for their jobs, but to my ear they do seem to be striking a different tone.
Anyway, overnight I think I detected approval from Chicago Fed president Charles Evans for the economic policies we all expect a president Trump to pursue.
Reuters reports that while Evans said “we are on the cusp of a period of rising interest rates” he also noted that “an infrastructure plan would be terrific, that would be good…I think corporate tax rationalization would be a huge improvement”.
I just don’t get the feeling Trump is as daft as many assume. Not even close. We may see a great president.
5. But Trump is likely a risky president too. Oxford Economics says he will be either the best or the worst thing for the global economy in 2017. Will Martin reports on a survey Oxford undertook of global investors which showed Trump was the top response on the top and bottom side.
Looking at the negative, investors worry that it is the possibility of Trump taking a protectionist stance on trade and jobs that causes the most worry, with fears that he could spark a trade war with Asia and Latin America. Those fears were stoked yesterday with his tweets about China and its currency policy.
On the top side, Trump is also seen as a potential boon to the economy, with his seemingly expansionary fiscal policy set to bump up US growth, in turn helping the global economy.
2016 has been a wild year. How 2017 shapes up in no small part depends on Donald Trump.
6. This is the best article on Business Insider today. Hopefully you’re still with me because I have saved the best till last today. Oscar Williams-Grut has a cracking article which looks at some research by global investment manager Bernstein where it says the “age of industrialisation is coming to an end,” with robots set to destroy manufacturing jobs globally.
Bernstein says this makes Adam Smith’s foundational economics book The Wealth of Nations redundant. As a result, the rise of robots, particularly China’s heavy investment in them, means capitalism is being reshaped before our eyes as the Fourth Industrial Revolution takes shape.
Seriously, this is a must read.
From Ric Spooner at CMC Markets, here’s today’s Stock to Watch
I’ve featured this chart a couple of times. UniCredit is Italy’s largest bank and it needs a very large capital injection. In common with the wider market last night’s share price move indicated that Mr. Renzi’s resignation was anticipated. Although it didn’t move a lot, the stock did finish down and remains below resistance.
UniCredit and other Italian banks may announce plans for a capital raising soon. If they are able to get them away, this could be a positive event for wider markets, removing this issue from the “wall of worry”
Ric Spooner is chief market analyst at CMC Markets. You can follow Ric on Twitter: @ricspooner_CMC