Crude oil has slipped around 2% over the past 24 hours as a combination of overhead technical resistance and news that Saudi Aramco has cut prices in Asia to retain market share questions the very notion of OPEC’s deal.
But apart from that move, it’s been a fairly positive night on markets globally. US stocks are mildly higher. Europe celebrated the fact that it had dodged Eurogeddon again with a 4% rally in Milanese stocks while the CAC in Paris was up 1.26% and the DAX in Drankfurt close to 1%.
So the wash-up for the local market is that after a disappointing rally yesterday, futures traders have marked the December SPI 200 contract up another 30 points, suggesting a strong open before the release of Q3 GDP at 11.30am AEDT.
On forex markets, the US dollar regained some of its strength pushing euro, sterling, and yen lower. The Aussie is weaker as well but considering expectations of a potentially negative GDP release today, it’s hanging tough at 0.7450ish this morning.
Gold is still languishing, iron ore is stuck below $80 for the moment and copper dipped the best part of 1%.
Here’s the scoreboard (7.52am AEDT):
- Dow: 19244 +29 (+0.15%)
- S&P 500: 2210 +5 (+0.22%)
- SPI 200 Futures (December): 5,458 +30 (+0.6%)
- AUDUSD: 0.7455 -0.0013 (+0.17%)
The top stories
1. It’s tinfoil hat time – Q3 GDP is expected to be a shocker when it is released today. Let me say first up that one of the remarkable things about Australia’s GDP releases is that even when you think you have a handle on where it will print, when you’ve seen all the partials which feed into GDP, and when all the economists have made their calls, there is always a chance of a surprise number.
I say that as background to the release today of Australia’s Q3 GDP data which is now widely anticipated to be a shocker. David Scutt has a great primer for today’s release in his 10-second guide to Q3 GDP and highlights that following the release of disappointing data inputs in recent weeks, there’s a strong possibility that real GDP may have contracted during the quarter, an outcome that has not been seen in Australia since early 2011.
If the pundits are right it could be an ugly day for the Australian dollar and the local stock market.
2. But don’t forget the RBA governor said this weakness will be transitory. Yes, today’s data could be a disappointment. But just like the Dun and Bradstreet survey of business yesterday suggested the soft spot may have already passed, so too did RBA governor Lowe suggest the weakness was transitory.
David Scutt had a great wrap of the governor’s statement after the RBA board decided to leave rates at 1.5% yesterday. But I want to highlight the part about growth. Not only did the RBA again reinforce that the Aussie dollar’s fall since 2013 is providing stimulus, it also said “higher commodity prices have supported a rise in Australia’s terms of trade…. providing a boost to national income”.
More importantly, on today’s data it gave a clear nod to weakness. Governor Lowe said: “In Australia, the economy is continuing its transition following the mining investment boom. Some slowing in the year-ended growth rate is likely, before it picks up again.”
Traders will have to deal with whatever data we get at 11.30am today. But it’s clear the RBA is already looking through to a lift in growth for 2017.
3. This might be the best news for Australia yet as we head into a Trump reflationary environment. There are many reasons Australia can benefit from the reflationary environment that a Trump presidency, and Trumponomics, can bring to the US and global economy.
Our export basket will remain attractive, our national income should remain strong, and elevated commodity prices will increase national income and feed jobs. But usually such an environment would also feed an Aussie dollar rally which would mitigate some of these positive aspects by acting as an effective tightening of financial conditions in Australia.
But that may not happen this time if Richard Grace, chief currency strategist and head of international economics at the Commonwealth Bank, is right. Grace said the bank “anticipate some 12-to-18 months of USD strength, beginning when the Trump Administration gets its tax cuts through the Congress”. David Scutt, yes again, has a great wrap of Grace’s note and the reasons for his call that the US dollar will continue to surge.
4. Here are Goldman Sachs’ 3 big fears for markets in 2017. Okay then, moving on from Scutty to the US where Bob Bryan has an interesting note on the three things Goldman Sachs bullish US chief equity strategist David Kostin is worried about for 2017. You’ll recall Kostin reckons the S&P 500 is headed to 2400 but he’s worried about the deficit, inflation, the Fed and rates.
5. Oil prices dipped over the past 24 hours but this hedge fund manager says prices will head toward $70. The FT reports this morning that French hedge fund Andurand Capital – which it says is one of the world’s largest oil funds – said OPEC’s deal is a turning point for oil markets.
“Opec’s agreement was stronger than the market anticipated and with Russia joining [the deal] this has set the market up for further gains,” Mr Andurand said, adding “it’s a real turning point for the market”. So he’s forecasting oil would hit $70 a barrel early next year.
6. Many fear Donald Trump will start a trade war with China but this China economist told us how China could hurt the US in a trade war. Interdependency is probably the word, the concept, that Donald Trump is going to have to get his arms around more than any when he becomes the 45th US President on January 20. I say that because after years of being an all or nothing deal maker, he’ll learn that unilateralism doesn’t necessarily work in foreign relations and he could shoot himself and US interests in the foot.
With that in mind, Linette Lopez sat down with Gene Ma, the Institute of International Finance chief economist, to ask him some questions about where the Chinese economy is going in the age of Trump. It’s an interesting read and Boeing might want to take note after Donald Trump cancelled the new $4 billion Air Force One last night – Ma said China can hurt the company by switching to Airbus if they want.
From Ric Spooner at CMC Markets, here’s today’s Stock to Watch
Shares in aged care providers are about getting exposure to the ageing population theme. They are also very much about exposure to the risk of constantly changing government policy. As yesterday’s events showed, this risk can be fairly binary.
The Assistant Minister for Health unexpectedly announced changes to plans to contain government funding to the sector. It will now freeze increases across the board instead of targeting funding for patients with acute needs. This is likely to favour the listed aged care companies and the result was a big jump in their share prices.
Regis, Healthcare where short positions account for about 4.5% of the total shareholding jumped 13% to find potential trend line resistance around $4.45
Ric Spooner is chief market analyst at CMC Markets. You can follow Ric on Twitter: @ricspooner_CMC