Crude oil bounced 4% last night changing the tone in stocks and markets more broadly. That saw the S&P 500 and Dow post mild gains, while gold fell and the US dollar rose.
That combination left futures traders on the local market in a much better mood after yesterday’s 74 point fall on the ASX200. September SPI futures rose 27 points suggesting a better day ahead for the local stock market.
Elsewhere the Aussie dollar failed again on another run above 76 cents. It seems traders agree with the NAB’s co-head of global currency strategy Ray Attrill who says above 76 cents is a good level to sell. Separately iron ore is marking time.
Here’s the scoreboard (7.39am):
- Dow: 18355 +41 (+0.23%)
- S&P 500: 2164 +7 (+0.31%)
- SPI 200 Futures (September): 5,446, +27 (+0.5%)
- AUDUSD: 0.7585 -0.0020 (-0.26%)
The top stories
1. ANZ says it couldn’t have rigged BBSW rates. The BBSW case in Australia appears very different to Libor rigging case that we saw in the UK. In the latter a club of traders at different banks seem to have worked together to manipulate the rates. In Australia, based on evidence that ASIC has released, it appears each individual bank is accused of taking on the market to move the BBSW rate in its favour. That’s very different.
And it’s not a semantic point according to the ANZ. The AFR reports this morning that “in its defence to allegations that it rigged the key market interest rate, ANZ said it had “no capacity” to distort the bank bill swap rate (BBSW), which was determined by a ‘dynamic market process'”
That, the banks says, means ASIC has misunderstood the influence that any one bank could have on BSSW. The AFR cites documents filed by the ANZ which make this point.
“ANZ had no capacity to raise (or maintain higher) or lower (or maintain lower) the level at which the BBSW was set by AFMA [the Australian Financial Markets Association] on any given Sydney business day in the relevant period to a level that did not reflect the forces of genuine supply and demand,” the banks said.
It’s an excellent point.
2. Bill Gross says there are 5 big questions that we need to address in markets and the economy right now. Bill Gross’ latest investor letter started off a little weird talking about kittens and Victoria’s Secret but got serious and asked 5 key questions that face traders and investors in the current environment. They really are the big questions for investors and it’s easy to see why folks are buying property and gold across the globe.
Bob Bryan has more here…it’s my BUSiness Insider must read of the day.
3. Cue gold up near post-Brexit highs and the buyers are still coming for it. The World Gold Council says “a perfect storm” in markets has left investors scrambling to add gold to their portfolios for protection. Akin Oyedele reports the council also said in its latest monthly report that investors have another prime and relatively safe choice in the government bonds of developed markets, but that has been compromised by “unconventional monetary policy”. Amen to that, and if you haven’t clicked through to the Bill Gross story yet, don’t forget.
4. And if you are wondering how negative rates distort everything look no further. you may not follow the reports of Europe’s banks but this week they haven’t been too flash. As Germany’s Commerzbank showed two night ago the negative interest rate environement is playing havoc on returns. That in turn will play havoc with bank capital and also lending – it’s a dumb idea.
Anyway, Reuters reports this morning that one in five company bonds bought by ECB yielded less than zero. Corporate debt below zero, are you kidding me. How the heck has Europe got an investment or growth problem if companies can borrow at these sorts of rates.
Let’s hope these comapnies are investing not buying back stock.
5. The guys who have been bullish about all-time highs now say the stocks just did something they did before the 1987 stock market crash. You can over-think markets in the same way you over-mine data. But that doesn’t necessarily mean that you are wrong. So it’s in that spirit I share the latest thoughts of Nautilus Investment Research’s Tom Leveroni who said in a note before last night’s small 0.2% gain in the Dow that the consistent downward moves in the Dow over the past week or so portends a bad moon rising.
Bob Bryan reports Leveroni said “Asterisk aside, this pattern has not been good historically. The Dow closed lower 1 month and 1 year later in 6 of the 9 occurrences since 1900 with 5 signals precisely marking cyclical tops (1901, 1919, 1966, 1976 and 1987).”
6. Here’s why the blockchain technology underpinning Bitcoin is better than Bitcoin itself. Bitcoin has had a good run over the past year but news yesterday that around 120,000 coins, worth around US$7.2 million, was stolen from a Hong Kong based exchange Bitfinex reinforce why Bitcoin has a way to go before it can go mainstream.
Zane Tackett, director of community & product development for Bitfinex, told Reuters the Bitcoin “was stolen from users’ segregated wallets”. Not good.
Bitcoin is a fiat currency, just like Aussie or US dollars; it’s not really backed by anything (even though the Bitcoin mining algorithm idea appropriates a gold-like status). So like the Aussie it has no intrinsic value just the value that users put on it. And that in no small part relies on trust.
Key data for the past 24 hours (with thanks to BNZ markets)
NZ: LCI priv. sect. wages total (q/q%), Q2: 0.4 vs. 0.4 exp
NZ: QES avg hourly earnings (q/q%), Q2: 0.8 vs. 0.9 exp.
CH: Caixin PMI services, Jul: 51.7 vs. 52.7 prev.
EC: Retail sales (m/m%), Jun: 0.0 vs. 0.0 exp.
US: ADP employment change (‘000), Jul: 179 vs. 170 exp.
US: Non-manuf ISM, Jul: 55.5 vs. 55.9 exp.
And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day
Onside with Woodside
I’ll admit it – I’m a Woodside (WPL) fan boy.
In a carbon constrained world, in my view gas is the long term answer. Woodside has truly world class assets, solid cash flow even at current oil and gas prices, and untapped reserves. CEO Peter Colman and the board are in a strong position to buy distressed assets, and have repeatedly demonstrated discipline in their M&A activity.
They’re my number one pick in what I believe is a compelling investment sector. Now have a look at the chart. It’s no surprise that WPL is trading near multi-year lows. We’ve all seen the headlines about oil prices. However, the downtrend is broken and the price has formed a base at $25.
Newer investors may argue that even at the current share price WPL’s P/E ratio is a higher 20 times. However, hard headed, experienced investors know that you buy resource stocks at high multiples, and sell them at low multiples. This is known as “looking through the cycle”. When commodity price forecasts are low, the “E” side of the ratio is depressed, pushing the P/E up. The ideal time to buy is before analysts start revising their commodity forecasts up.
Some analysts have already edged upward. And a single hurricane could change everything. Woodside reports its third quarter earnings on August 19.
Michael McCarthy, chief market strategist, CMC Markets
You can follow Michael on Twitter @MMcCarthy_CMC