Stocks in the US continued their quiet trade even though there were more warnings from the Fed that September could still see a rate hike.
That stability wasn’t mirrored in the SPI 200 however which is down 18 points indicating the physical market could retest 5400 when it opens this morning after yesterday’s failure to break 5440.
On currency markets, the Fed warnings, and a nice US dollar trendline, saw the big dollar recover which knocked the Aussie back from 77 cents.
On commodities, oil surged on a massive 12 million draw in inventories, gold was a little lower on the US dollar and iron ore fell to a 6 week low.
Here’s the scoreboard (7.38am):
- Dow: 18526 -12 (-0.06%%)
- S&P 500: 2186 -0.3 (-0.01%)
- SPI 200 Futures (September): 5,396 -18 (-0.3%)
- AUDUSD: 0.7671 -0.0010 (-0.13%)
The top stories
1. Let’s celebrate Australia’s remarkable run of 25 years without a recession. It’s been 25 years without a recession in Australia and David Scutt has the chart which shows just how ridiculous that run has been given all the headwinds the Australian economy, and the RBA, has had to face over that time. Not only is there no recession there is hardly any negative growth quarters at all.
Yesterday’s data actually showed year on year growth accelerated in the second quarter. So it’s no real surprise the Aussie dollar is back up here near 77 cents. Hard for the RBA to cut again unless inflation collapses further.
And if you missed it I threw together a little personal retrospective of how Australia rode that growth wave over the past 25 years.
2. The Fed might just surprise everyone at this month’s FOMC meeting. It’s time for the Fed to take back the ascendancy when it comes to monetary policy. Yesterday John Williams repeated his call for interest rates to move higher but I think crucially the fact that he said this will be a really shallow rate cycle could be the key to a surprise September hike but with a mooted dot plot and a chance for Janet Yellen to do an explainer at the press conference. Williams said it “makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later”.
I know the futures markets don’t support my view or expect a September hike. And I know most pundits are focused on what the Fed “will” do. But I think it’s important to focus on what the Fed “should” do. And the should is take back the ascendancy, and its credibility, from the market at setting rates. Tough luck if a few traders get their guess on what the bank is going to do wrong. Why is the RBA the most credible central bank on the planet? Because it always tries to do what’s right for the economy – not the markets.
3. Fed presidents Jeffrey Lacker, Esther George and the Beige Book support a rate hike. Overnight, Richmond Fed president Jeffrey Lacker was up on Capitol Hill and said “at this point it looks like the case for a rate increase is going to be strong in September…I just don’t see what would hold us back.” He’s a non-voter of course but he added “It looks like we’re going to have a recovery in the second half”.
His colleague from Kansas, Esther George, said that the labour market could already be at full strength.
But perhaps you might be able to argue the Beige Book, which is prepared by the 12 district Feds as a briefing document for the FOMC meeting, supports this notion of labour market tightness and rising wages, as Myles Udland points out here.
And certainly the massive print for the JOLTS survey which showed job openings in America are at a record high also supports comments from Lacker, George and the Fed in general about the economy. September is live.
4. We’ll be watching Chinese trade data today but the collapse in global shipping tells us everything we need to know about trade. The IMF reckons this might be the weakness year of economic growth globally since 2009. So no real surprise that we are seeing consolidation in global shipping and last week the collapse of Korean behemoth Hanjin which filed for bankruptcy.
Benjamin Zhang reports that there is now around $14.5 billion of cargo stranded as 85 of the company’s ships have been left in limbo — floating off the coasts of ports around the world after the company collapsed owing around half a billion dollars.
Concerns about shipping mean that today’s Chinese trade data could be even more important than the normally heightened level of market anxiety.
5. The world has officially gone mad and Citibank is right about central bank policies being wrong-headed. Yesterday I highlighted that Citibank analyst Hans Lorenzen said the US Federal Reserve, the Bank of England, and the ECB’s low-interest rate policies have increased economic inequality across the West, made the rich richer, and hurt pensions. They aren’t worth the effort, he said.
As evidence I offer you something I saw on my AxiTrader Dow Jones news feed. Deutsche Bank strategist Jim Reid said buying a corporate bond which offers a negative yield isn’t such a stupid idea given the lack of alternatives. Indeed Reid apparently said it somehow makes sense.
“He says clients are mentioning the even less favorable alternatives of being charged for holding cash, courtesy of the European Central Bank’s negative rate policy, or buying government bonds that trade at even more negative yields. For example, Henkel’s two-year euro-denominated tranche issued on Tuesday offered a yield of negative 0.05%, but two-year German government debt is trading at negative 0.68% on Wednesday morning.”
This of course doesn’t distort anything anywhere. Never ever.
6. USDJPY collapsed yesterday because of news reports the Bank of Japan is divided. Today is a big day in Japan as we get the release of Q2 GDP, the trade position, and foreign investment data. But in no small measure all eyes, and thoughts, are already on what the Bank of Japan is going to do on September 21.
I’ve been on the record many times since the January negative interest rates and yen fail, saying the bank and governor Kuroda took as massive hit to their egos and have lost their mojo amid a paralysis and crisis of confidence. Key yesterday was a report in Wednesday’s Sankei newspaper that said the BOJ board is split on its policy direction, further fueling skepticism that the central bank could take further action.
Interesting times and the CBA says USDJPY is heading under 100 soon.
Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Mfg activity volume, q/q, %, Q2: 2.8 vs. -1.2 prev.
AU: GDP, s.a., q/q, %, Q2: 0.5 vs. 0.6 exp.
GE: Industrial production, m/m, %, Jul:-1.5 vs. 0.1 exp.
UK: Halifax house prices, m/m, %, Aug: -0.2 vs. -0.1 exp.
UK: Industrial production, m/m, %, Jul: 0.1 vs. -0.2 exp.
UK: Manuf. production, m/m, %, Jul: -0.9 vs. -0.3 exp.
CA: Bank of Canada rate decision, 7 Sep: 0.5 vs. 0.5 exp.
UK: NIESR GDP estimate, Aug: 0.3 vs. 0.3 prev.
US: JOLTS job openings, ‘000s, Jul: 5871 vs. 5630 exp.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
BHP encounters resistance
The consensus view is that iron ore prices are headed lower, yet they remain stubbornly firm. Every week this continues is a bonus for BHP. It has helped support a price recovery but risks remain. Brazilian miner, Vale’s giant S11D project is due to ramp up production next year and while iron ore stays above $US50 there will not be much incentive to cut high cost production to compensate for this new supply. As often happens, the consensus might ultimately be right but not until traders have been burned by timing.
All this is well understood and it’s why the BHP chart might be showing signs of setting up resistance around the last 2 major peaks at $21.25/$21.50. There is also minor resistance around yesterday’s peak at $20.75. This takes the form of the old trend line support and 50% retracement level. Another rejection of this broad $20.75/$21.50 resistance could set up for another decline towards the major support and trading range low around $17.50
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
Business Insider Emails & Alerts
Site highlights each day to your inbox.