With the US out on holiday, European traders decided to focus on the ECB easing, due to be delivered next week, and the big recovery on Chinese commodity markets yesterday, to drive stocks sharply higher. That strength is good news for the local market today with the SPI200 indicating a 21-point gain when it opens this morning.
Elsewhere the Euro remains weak but the Aussie dollar is still holding above 72 cents. Oil is down a little, but copper looks much healthier than it did just a few days ago.
First the scoreboard:
- Dow: 17,813.39 Closed
- S&P 500: 2,088.87 Closed
- SPI200 Futures: 5,247, +21 (+0.4%)
- AUDUSD: 0.7230 +0.0020 (+0.28%)
And now, the top stories:
The pink ball. No US markets last night and a holiday today means traders in Australia are likely to give themselves a free pass to sit back and watch the first day-night test at the Adelaide Oval. It’s the debut of the pink ball, so there will be plenty of chatter in dealing rooms about its impact and longevity. Could the pink ball perform any worse than the red ones at the WACA recently?
It’s also the anniversary of Phil Hughes’ death, so black armbands will be on.
Weak CAPEX = RBA rate cuts? Yesterday’s release of CAPEX was disappointing. Most forecasters are still predicting next week’s Q3 GDP will print in the 0.7% to 0.9% range. But there was a palpable feeling of disquiet about both the drag the collapse of the mining boom is having on growth and the lack of pick-up in non-mining investment plans. Deutsche Bank Australia chief economist Adam Boyton neatly summarised the reality that the missing link for Australia’s economic transition remains: non-mining businesses are still not stepping up to the plate.
The RBA won’t be cutting rates anytime soon. But a lack of business investment means that the door remains ajar for an RBA cut in 2016.
Slater and Gordon. In a remarkable reversal of fortune, Australia’s listed litigant was hammered lower yesterday losing half its market capitalisation in one day. That’s after proposed changes to UK injury law saw traders and investers rethink the company’s outlook. It’s going to be a long way back for shareholders and management. But the volume of shares that changed hands yesterday suggests it might have been the pessimistic crescendo SGH needed to clear the decks.
Australian dollar to 67 cents. Don’t get used to this uncommon strength in the Aussie dollar is the message from JP Morgan, who Forexlive report have released a note saying that the battler is headed back to 67 cents in the New Year. But you get a sense the outlook is changing for the Aussie because they say it will rebound to 72 cents at the end of the year.
Key to this is the crash and then recovery they are looking for they say is “that at least in the short term, the AUD may exhibit a greater sensitivity to 1) interest rate differentials and 2) perceptions around the Chinese growth story in the year ahead.”
Watch out oil bears, the Saudis are getting busy. Oil was lower last night, but a week back I noticed a change in rhetoric from the Saudis on the price. Whereas they have been consistently leaving the market to drive prices there was a more conciliatory tone coming from oil minister Ali al-Naimi. That’s important because the market is very short oil and there is a big OPEC meeting next week. So it’s worth highlighting that the FT has been speaking to some well-placed sources who say that behind closed doors “they want prices to stabilise between $60 and $80 a barrel.”
The FT says the shift is actually being driven by the son of the king, Prince Abdulaziz bin Salman al-Saud, who is also the deputy oil minister. Recently he said “the scars from a sustained period of low oil prices can’t be easily erased.”
This is super important for traders. If the Saudis can drive prices higher that will drive inflation higher. That has implications for the Fed tightening cycle, ECB quantitative easing and even the RBA’s own door ajar policy.
Don’t mess with China. One of the bigger talking points today is news that the Chinese ‘national team’, those firms charged with propping up the stock market, now own 6% of all outstanding shares. The FT reports the China Securiites Finance Corp, one of the team members, increased its coverage of stocks from owning just two at the end of June to a whopping 742 at the end of September.
Ray Attrill, the NAB’s co-head of global currency strategy, said in a note to clients this morning that “There’s an obvious message here: don’t mess with China, and which remains instructive as we contemplate whether or not market forces will be allowed to play a much bigger role in determining the value of the renminbi in coming quarters – and which in turn has significant implications for EM currencies in general and with that the AUD.”
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
BHP is a “falling knife” at the moment. However, it’s entering a zone of potential long term chart support between about $17.25 and $18.75 that might prove interesting in coming weeks.
Each candle on the long term chart below represents a calendar month. Right now of course there is strong downward momentum represented by this months’ large red candle. The stochastic oscillator in the box below the chart has entered the oversold zone for the first time since 2012 but is still trending down. In these circumstances, most chart traders would look for some sign that BHP is actually starting to reject support and rally away from it rather than simply buying into a high momentum sell-off just because price has hit the top of the support zone.
The support possibilities around here include the 2008 low; a potential long term trend line dating right back to 1998 and an AB=CD pattern as outlined on the chart.
Below this there isn’t a great deal on the chart landscape until right down at around $13.50/$14.50 where there is a possible support that includes the 78.6% Fibonacci retracement of the whole 1998/2008 rally.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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