6 things Australian traders will be talking about this morning

Photo: Lisa Maree Williams/Getty.

Oil collapsed more than 4% last night knocking US stocks lower after the S&P 500 had been trading up at 2109 following the positive lead from the UK and Europe.

In the end, the US fought back to end the day down just around 0.1% lower but the SPI 200 has fallen harder dropping 0.4% suggesting a 21 point fall when the physical market opens on the ASX today.

The Aussie dollar is lower as well as a few offshore traders sold it down after S&P gave Aussie bears another excuse. But the big moves for the Aussie has been against the Kiwi where it lost close to 2% and is now sitting at 1.0360.

Elsewhere gold is down a little, copper lost almost 1.5%, overnight iron ore futures are lower and global bonds have put in a little bottom after last nights ADP employment report was strong. No they’re just waiting on the release of tonight’s non-farm payrolls.

Here’s the scoreboard (7.47am):

  • Dow: 17895 -23 (-0.13%)
  • S&P 500: 2097 -2 (-0.09%)
  • SPI200 Futures (September): 5,171, -21 (-0.4%)
  • AUDUSD: 0.7475 -0037 (-0.49%)

The top stories

1. Does Australia’s AAA rating matter anyway? Lots of hand wringing yesterday about the news that S&P had put Australia on credit watch negative. S&P cited concerns about the debt and deficit position and said there is a one-in-three chance that Australia loses its AAA unless “legislate savings or revenue measures sufficient for the general government sector budget deficit to narrow materially” are passed by parliament.

But the general view from key Australian economists is that this is a political issue and not one that will materially impact markets.

Paul Dales from Capital Economics summed it up nicely noting that “fears that a downgrade will raise the borrowing costs of the Federal government, the states and the banks are overdone. Nor should it weaken the dollar”.

So it doesn’t really matter for traders. But what matters for all of us is the inability of the political class to deal with important issues facing the nation. But as S&P suggests there is little chance that will change anytime soon.

2. Here’s a little German bank which might soon become the next flashpoint as fears grow of another global banking crisis. We’ve talked about the banking crisis in Italy this past week, and the troubles in the UK property fund sector are now well known. Seven British investment firms suspended trading in their property funds , freezing £15 billion ($US19.4 billion) of assets since Monday.

That has many folks worried about contagion.

Overnight Deutsche Bank, which was the subject of Italian prime minister Matteo Renzi’s ire earlier this week, hit a fresh all time low. But it is another German bank which might actually be the one to watch. The FT reports that “a bond sold by Bremer Landesbank lost a quarter of its value on Thursday, after signs that state support for the struggling lender may be weaker than expected”.

Citing Handelsblatt the FT says Bremer, which is part owned by the government of Lower Saxony, is weighed down by non-performing shipping loans. But Lower Saxony Prime Minister Stephen Weil said the bank can’t be recapitalised because (via google translate) “the classic way, namely that both partners provide the necessary capital does not seem to work”.

It doesn’t work because he’s not allowed to kick the tin. Jens Weidmann and Wolfgang Schäuble would be apoplectic.

3. Now we know just how tough a year 2016 is for traders. Bridgewater is reported to be down 12% so far. 2016 has been an ugly year of volatility in markets, economics, and sentiment. But in one of the best indications of just how hard it has become for even the best investors comes news that Bridgewater Associates, the world’s largest hedge fund firm, is seeing multi-billion dollar swings in performance.

Rachel Levy reports that the flagship Pure Alpha fund fell about 12% this year through June. Interestingly though on the other side of the coin the Wall Street Journal, which Rachel cites in her article, says the firm’s slightly smaller All Weather fund rose 10%.

So it’s not all bad news for Bridgewater. But it is a tough year nonetheless.

4. Gold’s rally might be about to get a central bank turbo-boost. After bottoming out around $1050 earlier this year gold has had a massive rally as it was supported by negative interest rates and morphed from an inflation trade into an uncertainty trade. That drove gold to a high this week around $1374 an ounce. Just a little way through the weekly down trend but below important resistance in the $1378/80 region. So the bulls are a little wary and have backed off a bit.

But Akin Oyedele reports that Capital Economics reckons central banks are about to get their gold buying hats back on. Capital’s Simona Gambarini says its emerging market central banks that will be the big movers.

But, can I draw you to Gambarini’s rationale for Golds attractiveness. “With rates having turned negative in most of Europe and Japan and likely to remain so for some time on “Brexit” woes, the opportunity cost of holding gold has all but disappeared”, she said. Readers of this note will be familiar with that theme.

5. Trapped. Citibank reckons that’s what stocks are, and it means prices aren’t going anywhere. If Bridgewater can have two funds with diametrically opposed returns it’s no surprise that stock market pundits may also be at odds.

Yesterday I noted Goldman Sachs chief US equity strategist David Kostin’s view that stocks will fall 5-10% over the next three months. But Bob Bryan reports Citibank’s Robert Buckland and the global strategy team at Citi said it is unlikely for stocks to go anywhere in the foreseeable future.

I can’t do justice to the note here but suffice to say Buckland sums it up saying “our Bear Market Checklist tells us to buy the dips, but we would be wary of chasing the rallies”. A trading range folks. Fantastic.

6. US non-farm payrolls tonight has never been more important. Everything changed for the Fed when the May non-farm payrolls were released a month ago. That print of 38,000 looked aberrant. But it was so low that the Fed, and many other commentators, had to scratch their heads and worry about the uncertainty in the US jobs market.

Tonight we’ll know the truth. Or at least the latest statistical version of it when the jobs report for June is released. The market is looking for an increase of 180,000 jobs and an unemployment rate of 4.8%. But in many ways it is the revision to last month’s number – and I’m guessing hopes of a big writeback of job creation – which is going to be the big story.

Here’s Akin Oyedele’s excellent preview of the release tonight.

Key data for the past 24 hours (with thanks to BNZ markets)

AU: Perf. of construction index, Jun: 53.2 vs. 46.7 exp.
GE: Industrial prod. (s.a. m/m, %), May: -1.3 vs. 0.1 exp.
CH: Foreign reserves (US$, b), Jun: 3205 vs.3167 exp.
UK: Halifax house prices (m/m, %), Jun: 1.3 vs. 0.3 exp.
UK: Industrial production (m/m, %), May: -0.5 vs. -1.0 exp.
US: ADP employment change (k), Jun: 172 vs.160 exp.
UK: NIESR GDP estimates, Jun: 0.6 vs. 0.5 prev.
CA: Ivey PMI (s.a.), Jun: 51.7 vs. 51.2 exp.

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

UniCredit SPA

Low interest rates seem to have shortened the stock market’s already limited risk horizons. The chase for yield is keeping people invested unless there is a clear and present danger on the immediate horizon. This means the focus of risk attention can vary fairly quickly.

There’s a decent chance that Italy and Italian banks are going to start pinging on the risk radar much more strongly over the coming months. The issues of political reform in Italy and how its banks are going to be recapitalised have potential to create another Euro crisis.

One simple aid to assessing the market pulse on these matters is to keep an eye on relevant price charts.

UniCredit is Italy’s largest bank. Its chart tells a sorry story for shareholders. The relevant thing from a macro risk perspective is that it has recently started to break below the support set by the GFC lows.

Ric Spooner, chief market analyst, CMC Markets. You can follow Ric on Twitter @ricspooner_CMC

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