6 things Australian traders will be talking about this morning

Don Arnold-GettyImages

Stocks in the US finished marginally in the black on Friday but the bellwether S&P 500 was 1% lower on the week.

Traders in Europe went home when US markets were stronger so they had a better day of it and the wash up is that the ASX 200 futures suggest a better day ahead for local stocks. The June SPI 200 contracts rose 20 points at the close on Friday night.

On Forex markets, the yen is still close to last week’s lows, sitting at 108.06 this morning with traders wondering if the BoJ can intervene to halt the yen’s strength in the current central bank climate. That strength has not been in isolation with the euro back above 1.14 but the Aussie dollar is still sitting in the mid to low 75 cent region.

On commodity markets, crude oil leapt 6% higher on Friday in Nymex trade to finish at $39.72. Gold is at $1,240, copper is still at $2.09 while iron ore rallied in New York trade.

Here’s the scoreboard (6.37am):

  • Dow: 17,792, +108 (+0.61%)
  • S&P 500: 2,072, +13 (+0.63%)
  • SPI200 Futures (June): 5,046, +23 (+0.5%)
  • AUDUSD: 0.7664, -0.0003 (-0.04%)

Now, the Top Stories

1. The Aussie dollar is heading lower says Morgan Stanley – that negativity is a metaphor for the current market. I’ve covered the call by Morgan Stanley analysts Jessica Liang and Charles Rubenfeld that it’s time to sell rallies because the Aussie is headed back to 70 cents here this morning. So I won’t rehash it here other than to say the essence of their argument is weak growth, China, the economy needs a lower Aussie and the RBA.

Rather I wanted to use the rally, pullback and now change of sentiment toward the Aussie, that is evident in its recent fall, as a metaphor for where we are in global financial markets more broadly at the moment. That is, this year we have seen a crash in pretty much every market followed by a recovery and now markets are stalled. The reason for the stall is that traders and investors are wondering what the next big catalyst will be or where they will come from. Until traders have a clearer picture, we might just have to get used to the S&P’s multiple 1% moves last week, oil’s ridiculous 6% bounce Friday and the ASX’s inability to hold a rally.

2. It’s US earnings season and there’s plenty of bad news priced in – but it might just be more terrible news. Akin Oyedele and Bob Bryan from BI New York wrote this morning that as earnings season kicks off this week, “we are about to get confirmation that earnings growth for America’s biggest companies was negative in the first quarter, compared to the same period a year ago”.

Analysts are really bearish and according to FactSet senior earnings analyst John Butters, the final scoreboard is expected to show a 9.1% earnings drop for the quarter. Theoretically, that should set up the chances of earnings beats and good news. Theoretically.

Not so fast, says the Equity and Quant Strategy team at BAML. They said traders should expect a solid beat, but it may already be priced in, “overall growth remains tepid and given the 13% rally off the February lows, much of the potential beat may already be reflected in stock prices”.

3. China’s currency may need to drop 15% Ambrose Evans-Pritchard has this morning published an article in the UK Telegraph that will be music to the ears of the US hedge fund managers with big bets that Beijing won’t be able to stop its currency, the yuan, from a big devaluation.

Given many of these bets feel a little like a rerun of George Soros’ famous take-down of the British pound, AEP’s framing is perfect. “A top adviser to the Chinese government has warned that Beijing risks a currency blow-up akin to Britain’s traumatic ordeal in 1992, if it continues trying to defend its exchange rate peg amid a deepening deflation crisis,” he wrote.

Yu Hongding, a director of the Chinese Academy of Social Sciences, told AEP that, “They must stop intervening on the exchange market. China needs to devalue by 15pc. They are creating conditions for speculators”.

4. The ASX should open higher but the big question is whether the bank rout is over. It should be a better start for the ASX today with futures indicating a rally of 20 points. But where the market goes from there is in no small part dependent on the outlook for the banks and whether the fact that they’ve (with the exception of the NAB) pretty much done a full round trip back to the lows of February has investors wanting to pile back in.

This fact and the reality that majors’ global banking peers, like Citibank, Wells Fargo, RBS, and Deutsche Bank, all rallied on Friday should help trade initially. But as Chris Joye pointed out in the AFR over the weekend, the uptick in regulatory oversight and the increased capital requirements could continue to weigh on sentiment toward the banks. The big question for traders is whether back near the year’s lows, it’s all priced into bank share prices or whether they are still biased lower.

5. What do Whyalla in Australia, Port Talbot in the UK and Tangshan in China have in common? I’m betting you got the first two right but Christopher Woody and AFP report this morning that even Chinese steel workers in Tangshan are getting laid off as the global steel glut leads to steel mills being closed in China.

Woody says state-owned steel firm Guofeng halted work last week, potentially putting 4,000 jobs on the line. It’s just the tip of the iceberg with up to 500,000 jobs on the line. That means “for China, turmoil in the steel and coal industries could have disastrous consequences for the social cohesion that has been needed to support and advance one of the world’s largest economies”.

You have to read this article. And then recall what Morgan Stanley says the implications of China’s economic transition for Australia are.

6. And it’s a big week ahead for markets and traders – here’s my diary of the key events. It’s a blockbuster week for local traders with the release of my favourite Australian economic indicator in the NAB’s Business Survey. We also get Westpac consumer sentiment and another massive spike in employment according the NAB’s market economic team. In China, we get inflation data today, in the US we get retail sales and the IMF and IEA both issue important reports.

You can read it all in my weekly diary of all the key data and events.

Key data for the past 24 hours (with thanks to BNZ markets)
UK: Halifax house price (m/m, %), Mar: 2.6 vs. 0.9 exp.
UK: Industrial production (m/m%), Feb: -0.3 vs. 0.1 exp.
US: Fed’s Dudley: cautious and gradual approach to hikes
Canada: Change in employment (k), Mar: 40.6 vs. 10 exp.
US: Wholesale inventories (m/m%), Feb: -0.5 vs. -0.2 exp.

You can catch me on Twitter.

And now from CMC Markets’ Ric Spooner is today’s Stock of the Day

CBA

The current bank sell-off has not given chart buyers a look in so far. Banks stocks have been pushed below retracement and support levels, showing few if any signs of pausing, let alone reversing the down trend.

That said, CBA is back to an interesting level. It’s testing the support zone that has seen it bottom out on 4 occasions since mid-2013. The lower end of this support zone is the 50% retracement level around $69.20. At that price CBA will have lost half the gains made between the 2011 low and last year’s peak at $96.28.

Chart based traders would be looking for some signs that this support is being rejected before reading too much into it. A move above Friday’s high at $71.32 would be a start. This would have the daily candles starting to make higher highs and higher lows. Pushing through the recent low at $72.70 would be more encouraging.

If things go the other way and the bank sell-off continues, the next major support looks to be right down at around $62.80/ $64.40. The bottom end of this range is the 61.8% Fibonacci retracement.

Supplied

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.