6 things Australian traders will be talking about this morning

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It was a sea of red on global stock markets overnight with the bellwether S&P 500 down 1%, the Dow down 0.75% while stocks in Europe collapsed more than 2% in Germany and France and 1% in the UK.

That’s left the ASX SPI200 futures pointing to a weaker day ahead for local stocks. The June futures contract is down another 18 points after what was an appalling day’s trade yesterday. So the pressure on the market, and the banks, looks set to continue.

On forex markets the Aussie dollar is off its lows but still down more than 80 points from the post-RBA announcement high yesterday. The Kiwi and CAD are also lower, euro is holding firm but the yen is surging.

On commodities it was, for once, a fairly quiet night but Nymex crude has surged this morning and is up 2.4% now after the inventory data show a draw of more than 4 million barrels instead of the 3 million barrel build the market had expected.

Maybe energy can rally on the ASX today.

Here’s the scoreboard (7.21am):

  • Dow: 17,603, -133 (-0.75%)
  • S&P 500: 2,045, -21 (-1.01%%)
  • SPI200 Futures (June): 4,890, -18 (+0.4%)
  • AUDUSD: 0.7535, -0.0062 (-0.90%)

Now, the Top Stories

1. The Australian stock market is having a shocker – where will it end? The banks got hammered again yesterday, BHP fell out of bed and the ASX 200 ended down 1.42% at 4,924 – a one-month low. The price action over the past week or so has shown the local market still has some very important valuation challenges.

Of course, the banks were hurt again by more aggressive talk from the head of the banking regulator, Wayne Byers, yesterday. But it’s more than that as well, even with relatively low PEs by recent standards investors are still eschewing the banks and it seems a retest of recent lows – almost there anyway – is in the offing.

The ASX can’t rally if US markets are selling off so today is likely to be another down day. But traders and investors locally will be wondering just how far the market can fall. 4900, 4850, maybe 4800? Time, and the performance offshore will tell.

2. The Aussie dollar got crunched last night but it wasn’t just about the RBA. Up the stairs and down the elevator is an old adage traders use when they often talk about the Australian dollar. It’s an adage that held true overnight with the Aussie making a low of 0.7511 – more than 2 cents from last week’s high. But while all the focus is on the AUDUSD rate, which fell 0.89% (68 points) in the past 24 hours much of the selling is related to a complete collapse in the USDJPY and the knock-on impact on the yen crosses like the AUDJPY.

While USDJPY fell 0.93% to 110.27 (lower USDJPY equates to a stronger yen) the fall in AUDJPY was magnified to 1.77% as the price fell to 83.11. With USDJPY at its lowest level since 2014 and with a downside bias, the pressure of yen selling against the Aussie can also continue.

AUDJPY Daily (MT4, AxiTrader)

3. Here’s what economists are saying about yesterday’s RBA statement. Before we get to Bill, Ivan, Scott and Shane, my view is the governor outlined a conditional set-up for an easing in his statement yesterday. I think it was a masterful message he sent to Aussie dollar bulls in order to cap the rise in the currency unless the US dollar falls completely out of bed. I wrote a little piece on the governor and the Aussie dollar over at AxiTrader yesterday afternoon for those interested.

But the beauty of this note is it’s not about me and the key message coming through from some of Australia’s best economists is that the RBA is still on hold but the door to an easing is a little more ajar than it was. David Scutt has more here.

4. The reason behind yesterday’s crash in Nine Entertainment’s share price should not have been a surprise. Nine Entertainment’s share price collapsed almost 24% yesterday after the company gave guidance that the free-to-air advertising market would fall in the low single digit range during this financial year as opposed to previous guidance it would be “flat to down marginally”.

The fall pushed the company’s share price to an all-time low of $1.16. But it reminded me of something that Will Low and Iain Fulton from Nikko Asset Management said when I sat down with them in March to discuss how to find stock market investment opportunities in a low growth world. Their process is called “future quality”and seeks to identify businesses where the future cash flow, growth and franchise quality are not reflected in today’s share price.

Which is where Nine Entertainment comes in. Fulton and Low told me companies like Facebook and Tencent still had significant upside because of the strength of their businesses and the under allocation by advertisers to the mobile ad market “relative to the amount of time people spend on their phones.” You can read the full article here.

5. Never fear, Fundstrat’s Tom Lee says, stocks will roar to all time highs by mid-year. When I see calls like these, I sometimes think of that TISM song about River Phoenix. But the reality is that for all the volatility in stocks in 2016 the global benchmark stock index – the S&P 500 is actually not that far below all-time highs at 2135. With a close of 2045 this morning it only has to rise a little more than 4%.

So Lee’s call that the stock market has had its “March 2009” moment is a real possibility and he outlined four things that could drive stocks to new highs before the start of spring here in Australia. He reckons the economic outlook in the US is looking rosier than stocks are pricing, shorts will get squeezed, oil will head back toward a balance of supply and demand and consumers will remain solid. Akin Oyedele has more here.

6. Is this good or bad? Northern Rock loans are being securitised in a massive deal. The FT reports this morning that “Cerberus Capital Management has launched what is set to be Europe’s biggest mortgage-backed deal since the financial crisis, attracting strong investor demand for an asset class that has struggled over recent years. The £6.2bn of securitisation bonds are backed by more than 80,000 pre-crisis loans made by Northern Rock, the failed UK bank. The loans were bought by Cerberus from the UK Treasury late last year in what was the largest financial asset sale by a government in Europe”.

On the one hand that’s good news because it means markets are functioning again and securitisation is a fantastic piece of self-liquidating funding. On the other though, maybe free money, low rates and QE is driving excess again. I’ll be positive and say the former.

Key data for the past 24 hours (with thanks to BNZ markets)

NZ: QSBO business confid (net%), Q1: 2 vs. 15 prev.
AU: Trade balance ($m), Feb: -3410m vs. -2500m exp.
AU: RBA cash rate target (%), Apr: 2.5 vs. 2.5 exp.
GE: Factory orders (m/m%), Feb: -1.2 vs. 0.3 exp.
EC: Markit services PMI, Mar F: 53.1 vs. 54.0 exp.
UK: Markit services PMI, Mar: 53.7 vs. 53.5 exp.
EC: Retail sales (m/m%), Feb: 0.2 vs. 0.0 exp.
US: Trade balance ($b), Feb: -47.1 vs -46.2
US: ISM non-manufacturing, Mar: 54.5 vs. 54.2 exp.
NZ: GDT Dairy auction, avg winning price: +2.1%

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