Stocks were a sea of red overnight with Asia’s weakness followed by some big falls in Europe.
The DAX lost close to 2%, the FTSE in London just shy of 1.5%. But traders in the US are less pessimistic than their European cousins, and lifted from their lows. Stocks are still down but sit mid-range for the day.
That leaves ASX futures for December down another 30 points after a tough day yesterday. The overall market may not suffer too greatly but the pressure is likely to be on again in the materials sector after Anglo-American’s radical restructure (see top stories) potentially portends more trouble ahead for our big miners.
Elsewhere overnight, the Aussie dollar dipped again but is just clinging to 72 cents after finding support at 0.7185. That’s in contrast to the strength the euro displayed but in keeping with the whipping the Canadian dollar received (see below).
Oil had a wild night but has ended down marginally, copper is up a little, iron ore can’t take a trick and gold hasn’t lifted even with all the turmoil.
First, the scoreboard (7.44am):
- Dow: 17,586.60, -142.77 (-0.81%)
- S&P 500: 2,062.18, -14.89 (-0.72%)
- SPI200 Futures: 5,084, -30 (-0.6%)
- AUDUSD: 0.7205 -0.0060 (-0.83%)
And now, the top stories:
1. How low can BHP go? BHP shares were down 5.2% yesterday to close at $17.05. As Chris Pash reported, that’s a long way from below the $24.90 BHP was trading at just four weeks ago.
After the big news overnight that another of the world’s big miners, Anglo American, is taking “radical” steps to avoid complete ruin, traders will be wondering what’s next for BHP. BI UK’s Will Martin reported overnight that Anglo is cutting its dividend, combining business units, cutting costs, and shedding assets in order to survive.
Commsec chief economist Craig James told Business Insider this morning that “shares in Anglo American fell by 12.3% after the company announced restructuring while London trade, shares in BHP Billiton were down by 5.5% while Rio Tinto fell by 8.4%”.
Anglo American is not BHP. But after yesterday’s big break lower, traders will be wondering about BHP’s future. Not its survival, but certainly the shape the firm might take and the policies it might pursue in the future. More pressingly however, traders will also be wondering how far the price might fall.
2. Iron ore is still sliding. I’m guessing around now the iron ore majors are yearning for long forgotten days of contract negotiations and long term pricing for iron ore exports. That’s because the spot price continues to slide. David Scutt highlights that the price now has a 38 handle on it which takes the year-on-year fall to a whopping 45.8% and has prices at the lowest levels since spot trading began in 2009.
Ahh, the old days.
The really bad news is that the fall is despite news that “Chinese iron ore import volumes, along with exports volumes from Port Hedland in Australia – the nation’s largest iron ore loading port – rebounded strongly in November.” Scutty has more here.
3. Are Australian rates traders rethinking RBA easings? There is a bid tone coming back into the front end of the yield curve according to Skye Masters, the NAB’s chief interest rate strategist. In no small part that is because the lower oil price suggests a persistence of lowflation both here in Australia and around the globe. But with Chinese CPI and PPI out today, Masters says the Chinese data is key.
China data appears to be just as important as domestic. China economic surprise index is faltering. The combination of further falls in the iron ore price and the soft China trade balance data has brought a bid back to the front of the Australian yield curve. This has occurred even as the latest NAB Business survey (out yesterday) showed signs of further improvement in the non-mining sector…We have suggested for a while that the lower commodity price environment will at least cap the rise in shorter dated yields but if sustained should bring a bid back to the market.
4. China’s currency is still sliding. China set the official level, what’s known as the fix, for the value of yuan yesterday at 6.4078. That continued the recent weakening trend the PBOC has been facilitating of the yuan and the currency continued to move higher over the course of the day to close 6.4162. It also caused a huge blowout in the value of the yuan in offshore markets, no subject to the PBOC’s 2% trading bands after the trade data as more PBOC easing and a weaker yuan was priced. That took the offshore rate just above 6.49 before traders got cold feet after the spread between the two rates moved to its widest level in months.
What’s important about this move is that the Chinese currency, whether onshore or offshore, is slowly drifting toward weaker levels seen in the immediate aftermath of China’s shock devaluation in August and associated with the big stock market rout at the time. In percentage terms, the moves aren’t huge but should the PBOC allow the yuan to continue to weaken, it could create volatility in markets more broadly.
5. Oil made another 6-year low. It was a wild day for oil markets across the globe. The FT reports: “In the space of five hours, Brent oil had swung from between $39.85 a barrel to $41.43 a barrel, reflecting gains as strong as 1.8 per cent and losses as steep as 2.2 percent before rallying and then falling into the red again.”
It was a similar day’s trade on the Nymex crude oil market with an overnight low of $36.64 and a high of $38.85. Nymex is currently at $37.58, around the middle of that range.
Whiplash collars anyone?
6. Bank of Canada joining the negative rate club? The Canadian economy has been buffeted recently by the collapse in the price of oil and the Loonie, the Canadian currency, has weakened to its lowest levels in 11 years against the US dollar as a result. That in itself should be stimulatory. But last night BoC governor Poloz argued that perhaps rates in Canada could go negative at some point if another shock hits.
Traders think he is preparing the ground both for a cut back to 2009’s record low of 0.25% and then a potentially even move into negative rates. Poloz stressed: “We don’t need unconventional policies now, and we don’t expect to use them. However, it’s prudent to be prepared for every eventuality.”
But central bankers don’t usually put something on the table unless they feel one day they might need to use it. The FT has more here.
So traders will be factoring that into their thinking now. Likewise, they are likely to increasingly start to think that low commodity prices, low inflation and tepid growth in Australia are likely to push the door further ajar for an RBA rate cut in Australia.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Qantas was a bright spot on yesterday’s commodity depressed stock market. It closed up 5% presumably due to investor bearishness on oil prices and the positive impact this would have on Qantas’s bottom line. Qantas has a large part of its fuel requirements for the current financial year hedged but still participates in around 70% of the downside benefits of lower prices.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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