6 things Australian traders will be talking about this morning

ASSEN, NETHERLANDS – APRIL 26: Ivan Clementi of Italy on the BMW S1000 RR for HTM Racing picks his bike off the track after a fall during the World Superbikes Practice Session at TT Circuit Assen on April 26, 2013 in Assen, Netherlands. (Photo by Dean Mouhtaropoulos/Getty Images)

US stocks slipped a little overnight, while bonds sold off and the US dollar found some support.

This could be the start of a very important trend, or it could be a one-day wonder.

Anyway the impact on the local market is that the SPI 200 is down again off 13 points. That suggests a weak start to follow yesterday’s big 0.7% fall.

On forex markets the Aussie dollar is 90 points off the high around 0.7730 as sellers hammered it back again. The Kiwi and yen were sharply weaker as well.

Gold dipped but oil surged more than 4% as news of another huge stock draw hit the newswires.

Today we are watching Chinese inflation and Australian home loan data.

Here’s the scoreboard (7.29am):

  • Dow: 18479 -46 (-0.25%)
  • S&P 500: 2181 -5 (-0.22%)
  • SPI 200 Futures (September): 5,352 -13 (-0.2%)
  • AUDUSD: 0.7640 -0.0031 (-0.4%)

The top stories

1. RBA governor Glenn Stevens is doing a victory lap – here’s what he’s saying. The AFR has a number of stories from an interview with outgoing RBA governor Stevens this morning. He reflects that Sydney house prices are giving him “some discomfort”, and he notes the change in nature of the two-speed Australian economy which now sees NSW leading the pack and WA lagging.

He seemed to suggest a high hurdle for another rate cut as well noting:

Most of the domestic effects of cheap money comes through the household sector. Higher house prices than otherwise, more borrowing than otherwise, wealth effects, lower saving rate, etc.

The thing that I’ve tried to grapple with is – that’s where we get the effects, but do we actually want households to engage in a major levering-up from here?

It’s not that what they did before was disastrous – that clearly hasn’t been. But from here, how much more do you want?

Either growth or inflation needs to crash it seems for another rate cut.

2. And here is a message for the Fed from governor Stevens. I know I’m out there on my own saying the Fed should hike interest rates this month. But data last night again suggests the economy is doing okay.

Consumer credit rose more than expected in July. And we got further signs from the US labour market last night that things are still tight. Jobless claims printed 259,000 lower than expected while data from DHI Group and University of Chicago economist Steven Davis looking at the JOLTS survey release yesterday showed the number of days to fill a job rose to 28.7 days in July. To put both those numbers in context, Dow Jones reported “even at the peak of the last expansion, employers only needed around 23 days to fill jobs”.

So when Stevens says of policy decisions “in the end, you can’t let the possibility that you will be misunderstood prevent you doing what has to be done … otherwise you would always be behind”, I wonder if the Fed is thinking the same thing about now.

3. Bonds, watch bonds. They were up sharply overnight and if the sell off continues markets could go into a funk. Bob Bryan reports that Treasurys got slammed after the ECB said it would not extend its bond-buying program last night. Not yet anyway. The the 10-year US Treasury yield was higher by 5 basis points at 1.60%, a little off the high, while the 2-year is back up at 0.77%. Rates in Japan yesterday, Germany overnight, and also in most of the other big markets were higher too.

Yesterday I penned a little missive noting that the sell-off in German and Japanese bonds could mean the 35-year rally is at an end. Maybe I should have talked a little more about US bonds. Why should you watch bonds closely? Because as the Japanese equity team from Jeffries said, “even a small change in the yield curve ought to bring about massive rotation within the stock market”.

4. Here’s another sign that we might be going to get an OPEC production freeze. Central bankers all around the world will be holding their breath hoping OPEC can stitch up a deal to drive oil prices a little higher. It will help on the global inflation outlook. And increasingly it’s looking like the end of the month meeting in Algiers might actually deliver.

The Saudis, Algerian oil minister and the head of OPEC are having a pre-meeting meeting in Paris tonight. And as Elena Holodny reports, Iran has tweaked the way it talks about oil and that could be a good sign.

Overnight this news, and the massive 14.5 million barrel draw in inventories, drove oil up more than 4%.

5. The ECB held rates overnight. Interesting reaction to the ECB announcement overnight. The fact that Mario Draghi said that an extension to the QE program next March hadn’t been discussed seems to have got a lot of comment. That and the fact that the ECB didn’t expand its program. The bank did slightly downgrade its growth expectation for this year to 1.6% but Draghi said “for the time being, the changes (in forecasts) are not substantial (enough) to warrant a decision to act”.

Will Martin reports Draghi also said it isn’t the ECB’s fault that banks aren’t making money.

6. Keep an eye on Jeff Gundlach’s big webcast on the economy and markets. Bonds are important, as I highlighted above and not many folks know more about the market than this guy. We’ve got his presentation running on the site.

Some notable quotes so far are that he says US 10s will be back at 2% by year end. That’s something that will wake US equity markets from their slumber.

I’m Greg McKenna and you can catch me on Twitter or at AxiTrader where I am the Chief Market Strategist.

Key data for the past 24 hours (with thanks to BNZ markets)
UK: RICs house price balance, %, Aug: 12 vs. 2.0 exp.
JP: GDP, s.a. q/q, %, Q2 F: 0.2 vs. 0.0 exp.
AU: Trade balance, AUDm, Jul: -2410 vs. -2700 exp.
CH: Trade balance, CNYb, Aug: 346 vs. 373 exp.
EZ: ECB main refinancing rate, 8 Sep: 0.0 vs. 0.0 exp.
EZ: ECB asset purchase, EURb, 8 Sep: 80.0 vs. 80.0 exp.
CA: New house price index, y/y, %, Jul: 2.8 vs. 2.5 exp.

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

Nintendo – Let’s-a go

Volatility may be low in the overall stock market, but the same can’t be said for Japanese stock, Nintendo. The shares turned up in some new places a couple of months ago care of Pokemon Go. Yesterday it was old Super Mario’s turn.

Nintendo’s share price put in a massive jump care of much awaited news that Super Mario is coming to smartphones. The game will be available in the Apple App store from December. From a revenue point of view this looks potentially more substantial than Pokemon Go. Nintendo owns the Super Mario franchise outright. A basic game will be available free of charge but above that you will need to pay.

Nintendo will be counting on Super Mario fans being happy to pay up for a bit of nostalgia trip and a chance to relive their childhood. The game has been modified to play using one hand on a smartphone. Super Mario runs automatically to the right.

Looking at Nintendo’s chart, the first obstacle shareholders face might be the gap created yesterday. A quick move back into that might be a sign of short term weakness.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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