6 things Australian traders will be talking about this morning

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US non-farm payrolls Friday were weaker than expected at 156,000 and the unemployment rate rose to 5.0%.

But an increase in August payrolls offsetting September’s miss means that the odds of a Fed hike in December actually crept a little higher.

That put a little downward pressure on stocks in the US. But after a strong week of gains, the US dollar and 10-year bond rates dipped a tiny bit into the holiday weekend.

Australian stocks are tentatively pointing to a positive open with the December SPI 200 futures closing up 8 points on Saturday morning. But the rally in the Aussie and Kiwi dollars, along with the push higher in USDJPY, suggest that perhaps expectations of a Clinton victory in today’s debate could see a risk-on tone in Asia today which could help stocks.

Gold climbed off the mat Friday after trading down to $1241 an ounce, the pound settled after its collapse in Asia, and oil drifted.

Here’s the scoreboard (7.50am):

  • Dow: 18240 -28 (-0.15%)
  • S&P 500: 2153 -7 (-0.33%)
  • SPI 200 Futures (December): 5,458 +8 (+0.1%)
  • AUDUSD: 0.7603 +0.0018 (+0.23%)

The top stories

1. The S&P 500 could be about to collapse. Citibank’s technical analysts have spotted a similarity between current price action in the S&P 500 and that which preceded the 1987 stock market collapse. They say it gives them “the chills”.

I’ve got more here.

2. The ASX has been doing well but it needs the S&P to rally to kick higher. My chart of the crude relationship in price terms between the ASX 200 and S&P 500 over the past 9 months has served me well as an indicator of where the ASX is headed. At the moment it suggests the local market is a little elevated while the S&P is stuck in this tight range around 2140/60.

It looks like the ASX needs the S&P to break higher to support its recent rally, or move to the next level. Maybe the catalyst will be a Clinton victory in today’s US presidential debate – assuming Clinton wins, of course. Either way traders will be watching the debate closely to see if Trump’s campaign is really dead in the water.

ASX200 v S&P 500 Daily (Source: Reuters Eikon)

3. The pound recovered after its Friday flash crash to close the week at 1.2435 but it seems “hard Brexit” is worrying forex traders. One of the world’s top three currency pairs is not supposed to drop 10% in the blink of an eye. But that’s what happened on Friday morning our time as a confluence of events, market sentiment, and thin liquidity drove the GBPUSD rate from 1.26 to 1.1840. It recovered quite a bit of that crash and is at 1.2425 this morning – still the lowest level since the mid 1980s.

Jim Edwards writes that things are going to get much worse for the pound, and Elena Holodny covers a great note from HSBC which says the pound is all about politics now.

My favourite part from that HSBC note essentially says “who’d want to buy sterling?”

To us the FX market is exhibiting an uncanny resemblance to the five stages of grief. First, following the Brexit vote came the denial – theories circulated whether a second referendum would have to take place. Second was anger – claims the vote was unfair. Third was the bargaining – arguments maybe it wouldn’t be that bad, what if the UK followed the Norwegian or Switzerland model. Now the fourth a gloom is prevailing over GBP.

HSBC is looking for 1.20 at year’s end and 1.10 in 2017.

4. We need to watch Deutsche Bank again this week. Deutsche Bank has had a great recovery over the past week or so. We’ve heard rumours that the DoJ would settle for around a third of the $14.5 billion fine, and we’ve heard the Qataris – the bank’s biggest shareholder – aren’t looking to sell down. That’s helped DB’s share price rally from a low of 9.89 euro to Friday night’s close at 12.09 – a gain of 22%.

But over the weekend, two new pieces of information emerged which could impact on its share price – and thoughts on global banking.

On Friday, Dutch finance minister Jeroen Dijsselbloem told Reuters the US fine was too big and threatened the bank’s stability. “Let’s hope it is an opening bid…These kinds of fines are completely oversized, they are damaging to financial stability,” he said. Then overnight we heard, via Bloomberg, that Bild is reporting Deutsche Bank CEO John Cryan was unable to reach an agreement with the DoJ when he was in Washington. US-EU fissures opening up is not healthy in the current global climate. Nor is the cloud of the DoJ fine hanging over DB’s head.

Ric Spooner has more from a technical point of view below.

5. Gold is ‘buried knee-deep inside a commodity bear super-cycle’. If you want to know how messy markets other than the S&P 500 are getting lately, just look at gold. At its low of $1241 on Friday night, gold was down $100 from where it was trading on September 29. It closed the week at $1256 but Jonathan Garber reports that Wells Fargo’s head of real asset strategy, John LaForge, says the shiny metal’s demise is not over yet.

He thinks it’s going all the way back to the December 2015 lows around $1050. But maybe then it will be a buy. Jonathan has more here.

6. And here’s everything you need to know about the week ahead for markets. As always, and with thanks to the markets economics team at the NAB, I’ve put together a look at the week ahead for economies and markets.

On the local scene, I’m most looking forward to the release of the NAB business survey. You can read more here.

I’m Greg McKenna and you can catch me on Twitter or at AxiTrader where I am the Chief Market Strategist.

And now from CMC Markets’ Ric Spooner is today’s Stock of the Day

Deutsche Bank

Deutsche Bank will stay on world markets’ risk monitor until it resolves the issue of its GFC fines with the US Department of Justice. Unless that happens, markets will remain alert to the risk that it could be forced into a diluting capital raising.

Deutsche’s chart has arrived at a level that provides some guidance on future market thinking. Having broken the support of post GFC lows, the stock has staged a correction over the past week. That correction has now arrived at resistance in the form of the bottom end of a price gap and the 61.8% Fibonacci retracement.

If price starts to fall away from this level, it will be a sign of ongoing nervousness. A push up through the top of this gap is likely to indicate the kind of relief associated with a favourable resolution of the fine issue from a capital raising point of view. However, it will be difficult to conclude that the market is getting genuinely optimistic about this stock unless it breaks above resistance and the 200 day moving average.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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