It could have been much worse overnight after UK and European stocks traded lower on fears about the UK economy and broader EU banking system took hold in Asia driving the pound lower and gold substantially higher.
That’s helped the September SPI 200 futures rally 0.7% with a 35 point gain overnight. That suggests a good day for local stocks when the market opens. But there are still many competing headwinds and China releases its foreign reserves data today.
Elsewhere the Aussie dollar is back above 75 cents again as the buying came for it again. It’s outperformed the other commodity currencies, Euro and Yen.
On commodity markets gold is still very strong, oil rallied but copper and iron ore were lower overnight.
Here’s the scoreboard (7.40am):
- Dow: 17918 +78 (+0.44%)
- S&P 500: 2099 +11 (+0.54%%)
- SPI200 Futures (September): 5,189, +35 (+0.54%)
- AUDUSD: 0.7512 +0.0051 (+0.68%)
Now, the Top Stories
1. THIS IS WILD – There’s now a game to make you a better trader. I’ve only had a quick go at this so far this morning but the new Bloomberg/ReThink Group game they have put together to help sharpens traders skills looks like a lot of fun.
Tina Wadhwa reports the Trader Brain Exercise displays a series of videos that depict the movement of shapes. Traders are then supposed to study each scene and then anticipate the direction of the shapes’ next move. The ability to do this successfully correlates to the traders’ skills in predicting short-term movements in price, according to the creators.
It feels a little esoteric – or at least it did in the minute I played with it but Denise Shull from the ReThink group told Business Insider that traders think about the markets in a human way and behind every price movement, there is a person, and traders aren’t even conscious that they think this way.
And in homage to Keynes famous beauty parade analogy, Shull said “markets masquerade as a maths game when it’s really a people prediction game”.
2. Here’s how a guy who’s responsible for managing $US2 trillion of assets is seeing the world right now. Mark Haefele is global chief investment officer at UBS Wealth Management.In that role, he oversees the policy and strategy for about $US2 trillion in assets. And Akin Oyedele caught up with him to see how he sees markets at the moment.
I can’t do justice to the interview in this space but the highlights are that Haefele likes stocks, high yield EU debt, bonds over gold, is less worried about China, thinks the US presidential election needs more attention, and infrastructure spending should increase.
It’s a good read – you can find it here.
3. GOLDMAN: Get ready for another stock market dive. It’s been a tough yeah for investors. The constant volatility and the emotional rollercoaster of panic and fear giving way to hope and euphoria in the price action of markets has left many stunned while plenty of investors have moved to the sidelines.
But according to Goldman Sachs chief US equity strategist David Kostin stocks are about to head lower again – substantially so. Bob Bryan reports Kostin says a market sell-off between 5% and 10% should be coming soon.
“Although investors appear complacent in the wake of Brexit, a maturing economic cycle with elevated valuations, decelerating buybacks, and growing political uncertainty provide the basis for potential market weakness in the second half”, Kostin wrote.
Keep those tin hats handy.
4. Bill Gross says Steve Keen is right. At its core modern central banking runs a fairly simple strategy. Raise or lower interest rates to influence the demand for debt in the economy. In doing so central banks hope to influence economic activity in the economy. For years it worked nicely. Recently growth rates around the world have fallen. So central banks have cut rates to record lows and pushed into negative rate territory in an attempt to pull forward demand by encouraging consumers and business to borrow and spend.
But it has become clear the efficacy of policy has fallen. In many respects the post-GFC world is like an economic superbug resistant to central bank policy.
Central banks have pumped credit (debt) into the global economy but it’s not working. That’s something that Bill Gross has addressed in his most recent outlook. Bob Bryan has a good wrap of that outlook and for me the key takeaway is when Gross says:
Our credit-based financial system is sputtering, and risk assets are reflecting that reality even if most players (including central banks) have little clue as to how the game is played.
And as Gross says “when the private system (not the central bank) fails to generate sufficient credit growth, then real economic growth stalls and even goes in reverse”. AHEM folks cue Steve Keen, he’s been singing this song for years.
5. Three out of five Melbourne property developers are struggling to access bank funding. The Urban Development Institute of Australia (UDIA) has released a survey showing that three out of five Melbourne developers are struggling to access bank funding to complete new housing projects, the AFR reports this morning.
The survey of 50 developers showed that 60% said funds were increasingly unavailable through traditional channels while 78% said at least one of their projects will be delayed with half expecting these delays to be more than 6 months.
“The institute’s survey findings have measured and confirmed the groundswell of concern about volatility, market conditions and funding constraints in Victoria,” its Victorian chief executive Danni Addison said.
Something to watch folks.
6. ICYMI – Here’s why markets feel like it is 2007 all over again. I put down a few thoughts on how the redemption halt of 3 UK property trusts (now increased to 6 overnight) is a bit of a canary in a coal mine for global banking and finance and why markets are worrying about a redux of 2007.
It’s about trust and confidence in banking and potential runs of withdrawals from property funds spread and feeding on themselves. But it’s also worth noting something that is not in the piece. That is the OIS-Libor spread in the UK has increased above 30 points from the 10-15 it’s sat at for most of the past 5 or 6 years. That’s a little sign of potential stress in the banking system and something to watch.
Additionally, overnight Italian prime minister Matteo Renzi stepped up his battle over Italian banking with Berlin and Brussels by making a thinly veiled quip about derivatives leverage at some European banks. He was widely taken to be referring to Deutsche Bank which dutifully fell more than 5% to another all-time low overnight.
Key data for the past 24 hours (with thanks to BNZ markets)
GE: Factory orders (m/m, %), May: 0.0 vs. 1.0 exp.
US: Trade balance (USD, b), May: -41 vs. -40.0 exp.
US: ISM non-manufacturing PMI, Jun: 56.5 vs. 53.3 exp.
US: Fed Minutes release: little market response.
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