With no fresh catalysts after Friday’s non-farm payrolls, stocks in the US were higher, then dipped in what you could easily characterise as “Summer, Olympics” trade.
But even though the Dow, Nasdaq and S&P were all marginally lower, positive moves in commodities, particularly oil and iron ore, helped global mining stocks rally and the SPI 200 September futures contract is up 11 points suggesting a mildly positive start to the day’s trade when the physical market opens at 10am.
Elsewhere forex was fairly quiet except for the Aussie dollar which had another pop at the top of the recent range with a high overnight of 0.7671. It’s only off a little at 0.7656 as we await the release of ANZ consumer confidence and the NAB business survey today.
Here’s the scoreboard (7.42am):
- Dow: 18529 -14 (-0.08%)
- S&P 500: 2181 -2 (-0.15%)
- SPI 200 Futures (September): 5,494, +11 (+0.2%)
- AUDUSD: 0.7656 +0.0050 (+0.65%)
The top stories
1. The ANZ started the debate about increased regulatory costs yesterday – here comes the explanation on why the banks withheld so much of the RBA rate cut. Just a day before its trading update, the ANZ issued a press release yesterday discussing the impact of the increase in APRA’s hard floor for average mortgage weights. Essentially the ANZ showed that all the capital it has raised so far to bolster its balance sheet has in effect been eaten up via the allocation to cover this new increased weight in mortgages.
Major banks still enjoy a material capital advantage (they get to hold less) versus the regional banks and mutuals like Police Bank (where I am a director). But capital is at the very expensive end of a bank’s funding cost curve so we’ll be looking to see what Shayne Elliott has to say about this and how costs meant he couldn’t pass on the entire 25 point cut at the update today.
2. Is copper waving a red flag for the Chinese economy? If you were trading in Asia yesterday you could be forgiven for being astonished how well the market took the big falls (US dollar terms) in Chinese exports and imports. Just a few months back that would have seemed unlikely.
But while the trade data showed signs of slowing it didn’t suggest the world is going to end.
But BMI Research says the price of copper might be waving a red flag for the world’s second biggest economy.
3. Just when you can get petrol under $1 a litre again, here comes OPEC talking about production freezes. The RBA may not like the fact I’ve recently received a 20% discount on petrol again as E10 has collapsed below $1. But the fall in petrol also gives many Australian households an effective tax cut, or wage rise, as the cost of fuel eats less of their disposable income.
But, after its near 20% fall, oil was $5 higher in the past week with WTI back above $43 this morning on reports OPEC is planning talks to discuss a production freeze. The Russians appear to have already scotched the idea of a universal agreement. But the oil market certainly looks like it is getting comfortable around $40 a barrel.
4. Barclays is worried that central banks are all out of ideas and ammunition and there’s nothing left to fight the coming economic storm. This is a bit of a what Mr Watson used to say to Sherlock one. But, Barclays has joined a growing chorus around the world which wonders about the future of central banking given that at zero or negative rates, central banks might be a bit like Old Mother Hubbard next time we have a financial crisis.
It’s the same message central bankers themselves have been pushing this past year. Something Glenn Stevens will probably talk about tomorrow in his last speech as governor. The key is that there are diminishing returns from incremental central bank easings from here. So fiscal policy needs to play a role, a big one.
5. HSBC says sterling is going to collapse to 1.00 against the US dollar. OK folks, time to get ready for those UK holidays because if HSBC is right and GBPUSD collapses 30 big figures to 1 against the US dollar, AUDGBP is going to go through the roof.
Jim Edwards reports HSBC analyst David Bloom and his team believe the Bank of England will cut interest rates down to 0.10% in November and sterling will fall to attract capital and balance out the current account deficit funding needs the UK has.
6. There are more billionaires than ever before and they are frightened. Alex Morrell reports the once rarefied cadre of humans with a net worth eclipsing $1 billion ballooned to 2,473 in 2015 — a new record. But it seems this cabal of mega rich might be worried about losing some of their billions because Rachel Butt reports after making plenty, these folks have been cashing out over the past couple of years and they are now holding a little more than 22% of their wealth in cash.
No wonder even with cash rates at 1.5% folks are still buying the Aussie dollar.
Key data for the past 24 hours (with thanks to BNZ markets)
JP: Eco watchers survey/outlook, Jul: 47.1 vs. 42.0 exp.
GE: Industrial production, m/m, %, Jun: 0.8 vs. 0.7 exp.
CH: Trade balance, CNY, b, Jul: 343 vs. 312 exp.
EZ: Sentix investor confidence, Aug: 4.2 vs. 3.0 exp.
CA: Building permits, m/m, %, Jun: -5.5 vs. 1.5 exp.
US: Labour mkt conditions index chg, Jul: 1.0 vs. 0.0 exp.
And now from CMC Markets’ Michael McCarthy is today’s Stock of the Day
Telstra reports its full year earnings on Thursday. Expectations are for a decline in profit of around 7.6%, against a backdrop of modestly growing revenue. Further falls in earnings are expected next year as the NBN roll-out sees competitors get a chance at longstanding Telstra fixed line and internet customers.
Companies with size and scale generally are at an advantage. However, one of the down sides to being a large company is that it can be difficult to create projects or make acquisitions that have a significant impact on the bottom line. This is Telstra’s conundrum. What can they do that will deliver growth that has impact?
There are no easy answers. Initiatives like the national wi-fi network, and improving the mobile customer experience, will not transform the company. Unfortunately for TLS shareholders there is no industry peer that a) TLS could buy given competition law and b) would contribute meaningfully to profit.
In other words, there’s unlikely to be new good news on Thursday, and there may be disappointment. And TLS is trading near the top of its recent range:
Michael McCarthy, chief market strategist, CMC Markets.
You can follow Michael on Twitter @MMccarthy_CMC