Today might be called “Putin Day” after the Russian president ignited a big rally in oil, which in turn lifted stocks, when he said at an energy conference in Istanbul that Russia is ready to join OPEC’s cap on production.
That sent WTI crude 2.8% higher to $51.21, its strongest close since June while Brent rose 2% to $52.97. That’s Brent’s highest close since August 2015.
That strength in oil, combined with what appears to be a relief rally as traders assess the Trump presidential campaign to be in terminal decline, drove stocks in the US higher. That’s lifted the ASX futures with the SPI 200 up 21 points suggesting that the local market is close to breaking the elusive 5500 in trade today.
On forex markets, the US dollar was stronger against the major currencies except the Canadian dollar, which got a lift from oil, and the Aussie which benefited from a commodity surge (iron ore and copper both higher) and the lift in risk appetite to resist the USD strength and hold at 76 cents after a low of 0.7576 yesterday.
On the docket today is the NAB Business Survey. It’s the single best read/predictor for the Australian economy released each month.
Here’s the scoreboard (7.29am):
- Dow: 18329 +49 (+0.49%)
- S&P 500: 2163 +10 (+0.46%)
- SPI 200 Futures (December): 5,481 +21 (+0.4%)
- AUDUSD: 0.7603 +0.0000 (+0.0%)
The top stories
1. Russian President Vladimir Putin ignited a big rally in oil overnight. Central bankers all over the world would have danced a jig after news broke overnight that not only is OPEC trying to stitch together a deal, the Russians are going to join in.
Oil pushed more than 3% higher after Putin said Russia “is ready to join the joint measures to cap production and is calling for other oil exporters to join”.
This is important for central bank policy folks. The day after we heard chatter that the BoJ is likely to push the attainment of its 2% inflation target back the move in oil, if it’s continued and if it’s sustained, will be a boon for inflation in Japan. That’s also the case around the globe.
Could we be about to see a big shift into a global reflation trade? That could cause some big relative moves within stocks indexes and companies.
2. The oil price rise means the ASX should be able to finally break back above 5500. For eight trading days or so, the ASX200 has camped just below the 5500 level unable to trade through or close above it. But today could be different with the oil price rise likely to buoy the energy sector while the miners are likely to replicate their big moves in London overnight.
As noted above, that’s got futures traders suggesting a 19-point rise to open trade today. That still leaves the physical ASX a few points shy of 5500 at 5495, yesterday’s high, but if traders want to run through that level, today’s the day.
In a reflationary world, I know it’s a huge call but it feels like it’s coming. The ASX should do extremely well.
3. Is the collapse of the pound telling us bad things are coming for the UK economy? Jim Edwards reckons it might in this interesting piece looking at the impact of the fall in the pound and what it means.
But, as Australia knows – probably better than any developed nation – there is a self-curing nature to a currency collapse if the economy is dynamic enough. For me, that’s the real question for the UK.
4. The Chinese yuan set at a six-year low yesterday. David Scutt reported yesterday that on the first day back from its Golden Week holiday the Chinese Central bank, the PBOC, allowed the official yuan rate to weaken to the lowest level in six years.
In many ways that move was simply a validation of the moves in the offshore market while China was on holidays and the move just brought the USDCNY into line with the USDCNH, as I discussed at AxiTrader yesterday.
But it is a signal the Chinese will let the currency slide when necessary, which is a positive for the economic growth outlook. So too are comments yesterday from PBOC deputy governor Fan who said China will maintain a prudent monetary policy with timely fine-tuning in order to provide favorable conditions for deleveraging.
5. Earnings season in the US kicks off in earnest today – it could be the catalyst for a break from the market’s recent slumber. It’s hard for the local stock market to break materially higher, up and through 5500, if the US market is still stuck in a range. Not impossible of course, but much harder.
It’s not hard to see where the catalysts for the downside could come. The Fed, economy, banking, and so on. But perhaps US corporate earnings season could provide the catalyst for a move higher. It feels like a lot of negativity is baked into expectations.
Yet the counter to this, as Bob Bryan writes, is that Donald Trump and Hillary Clinton are about to get blamed by the CEOs of the world’s biggest companies for falling short of expectations. Time will tell – I’m just trying to be glass half-full.
6. While we are watching Deutsche Bank other European banks are now in strife. Deutsche Bank had a good night with its share price climbing more than 3%. But the focus shifted to the Royal Bank of Scotland overnight. As Lianna Brinded reports, one of the biggest scandals to hit the Royal Bank of Scotland, dating from 2013, got a new lease of life after a number of businesses that claim RBS engineered them into default on their debts – so that the bank could extract cash from them – leaked documents to Buzzfeed and the BBC.
Separately RBS may be on the hook for up to $27 billion in fines and lawsuits in the next few years. That’s roughly the market cap of the bank.
Coming as Deutsche is reported to be reconsidering its strategy, including more job cuts, as Commerzbank plans almost 10,000 in job losses and as Dutch banking giant ING plans to shed 5,000, the RBS news is just another indication that Europe’s banks are in a pickle.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day