Increased expectations that the Fed will tighten in December, a dip in the price of oil, and a surge in the US dollar to levels not seen since March weighed on stocks and the Aussie dollar overnight.
Alcoa’s disappointing start to earnings season didn’t help. But it feels like it’s the US dollar which could be the drag on earnings expectations in the US as we head through the reporting season. Time will tell.
But the wash-up is that futures traders are expecting a weak start to the day when the ASX opens at 10am with the December futures down 45 points overnight.
On the docket today we have Westpac consumer sentiment at 10.30am AEDT. I’ll be watching the unemployment expectations sub-index as a real gauge to what consumers might do rather than just what they say about confidence.
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. The ASX200 just can’t break 5500 – now it’s pointed lower. I was hopeful, but not overly expectant, that the ASX 200 would break and hold above 5500 yesterday. It almost got there with a high of 5498 but closed up just 4 points at 5480. Henry Jennings of Marcus Today wrote in his afternoon note that despite rallies in China and Japan, the local market “struggled to kick on after a promising start as industrials and banks squibbed with solid gains in energy and material stocks. Low volumes and apathy didn’t help.”
That last bit is important because when apathy combines with a solid wall through which price can’t break, we often see traders react by selling aggressively. So after nine days where the market failed near 5500 and with a strong lead lower by the moves in US markets, the questions for traders today is whether the 45 points the futures are pointing to is enough. Maybe 5372, where the recent two week rally started, might be more of an attraction?
2. So the GFC hasn’t really finished and the world economy is stuck in a ‘rolling cycle of crises’. Liz Ann Sonders is the chief investment strategist at US broking giant Charles Schwab and she sat down in a with Henry Blodget in a Facebook Livecast overnight to discuss how she called the bottom for stocks in 2009 and what she thinks the outlook is now.
She told Blodget that the massive debt build-up in the economy hit a wall in 2008, leading to the global financial crisis, and that the fallout from that crisis is still causing problems in economies throughout the world. Sonders noted that total debt — public, private, non-financial, and financial — is now 350% of GDP, and that is already causing problems for the economy.
You can find more here and watch the interview – it’s worth the time.
3. SURPRISE: Folks are talking positively about China again. If there was an Oscar for Best Performance by an Economy in the Face of Overwhelming Bearishness it would go to China in a unanimous vote. It really is the economy that just keeps keeping on and Rachel Butt reports that we’ve actually seen an upgrade to growth expectations.
Morgan Stanley’s Robin Xing and Jenny Zheng raised their GDP forecasts to 6.7% from 6.4% for this year, and to 6.4% from 6.2% for 2017. On Tuesday, the PBOC said that monetary policy would continue to support deleveraging and Rachel also notes that Jefferies’ Sean Darby says swollen Chinese factories have shown a sharp improvement amid officials’ monetary and fiscal easing. More here.
4. In case you are wondering why the Saudis are suddenly trying to stitch together an OPEC production cut. Things haven’t exactly gone according to plan for the Saudis since they decided to keep pumping and chase market share in 2014.
Michael Tran, commodity strategist at RBC Capital Markets, says his bank has “difficulty finding a metric suggesting that the Saudis emerged victorious on the goal they set out to achieve two years ago”. Yup, the Kingdom’s finances are in dire straits and its competitors pumped more along with it. Something had to give, hence all the talk about a new deal on production. Elena Holodny has more here.
And speaking of, oil prices fell overnight after the ‘world’s scariest man’ said no to freezing production. And no, that’s not Vladimir Putin.
5. The Bank of England may be faced with an inflation threat just when it wants to keep rates low to ease Brexit. The deputy governor of the Bank of England said last week the bank would be ignoring short-term data, which seems to suggest no economic impact of Brexit just yet, because it thinks the costs of Brexit are still coming down the pipe and will be dire.
But Jim Edwards has a piece which says inflation is coming back and could rise to 3% again. That will complicate things for the BoE as it tries to steady the economy.
6. This is very good – hedge funder John Hempton explains why Twitter is a perfect target for an old-school private equity takeover. I don’t really have anything to add to this other than say you should read it. That’s especially the case if you want to have a look into how the mind of a private equity investor works when they are evaluating a purchase. The corollary of that is this piece might also help identify the questions investors should ask next time private equity decides to refloat something it took private.