A very interesting night’s trade on global markets with stocks a sea of red again.
Europe’s bourses were all lower and despite early gains in the US, traders turned tail and sold. As we head toward the close, the Dow and S&P are now climbing off their lows but it’s setting up another poor day’s trade on the ASX.
It’s on forex markets where the impact of falling stocks has had the greatest influence, with the yen and euro rallying hard as money flows home in a mini-safe haven trade. That dragged the pound higher but commodity currencies languished for most of the night. That is until 7am when the Australian dollar started to move higher.
But that move was not under its own steam. Rather, the Kiwi has roared higher after the RBNZ cut rates. Yes, cut rates. Kiwi is up 1.3% at 0.6729.
On commodity markets, oil had a huge night but a very bad one. It’s only down 0.27% but the price action was appalling. Base metals were mixed although copper is up a little. Gold is still languishing.
So, the scoreboard (7.48am):
- Dow: 17,492.20, -74.50 (-0.45%)
- S&P 500: 2,049.10, -14.49 (-0.7%)
- SPI200 Futures: 5,052, -29 (-0.6%)
- AUDUSD: 0.7232 +0.0017 (+0.24%)
And now, the top stories:
1. Where did Santa go? Stocks are down again today. The S&P 500 has broken its one-month uptrend. SPI futures are off 35 points suggesting the ASX is going to have another bad day as the push toward 5300 recently fades to memory. But while the focus today is on the downside and traders will be wondering how low stocks can go, history says that the Santa rally doesn’t usually start till mid-month. So all is not lost.
Jeff Hirsch, in a recent blog post from the US Stock Traders Almanac, highlighted that “the first part of the month tends to be weaker as tax-loss selling and year-end portfolio restructuring begins.” But once that is done, he says:
December is the number one S&P 500 month and the second best month on the Dow Jones Industrials since 1950, averaging gains of 1.7% on each index…In pre-election years, December’s overall ranking remains about the same across the board however, average gains improve handsomely. DJIA averages 3.0%, S&P 500 3.2%, NASDAQ 4.9%, Russell 1000 3.5% and Russell 2000 4.0%.
Not many traders will want to try to catch the falling knife in the run-up to next week’s FOMC meeting. But, ahem, that meeting and the likely decision to raise rates nicely coincides with mid month. So maybe Santa will be back soon.
2. Australia’s jobs report is out today. Like non-farm payrolls in the US, the most important data release in Australia each month is the ABS’s Labour Force release. It’s out today and traders are expecting some give back of last month’s outsized 58,600 jobs gain.
Of course, no one believes Australia actually created 58,600 jobs last month. Not even the ABS. But, the Australian jobs market has been a truly bright spot in the economy over the past year. Despite the reality that any individual monthly release is little more than a guide to the number of jobs created in the economy during the month, the trend is still important. And the trend in Australian employment has been strong recently and there are now more Australians working than ever before. 11,838,200 in fact.
That record number of workers is earning and spending in the economy. No wonder the domestic economy is starting to lift. Anyway, the market thinks jobs will fall 10,000 when the data is released at 11.30am AEDT today. In the meantime, David Scutt has your 10-second guide to the data.
3. China is “stress testing” the yuan and forex markets. So now we know what’s going on. The PBOC has let the yuan weaken from 6.31 a month or so ago to 6.4270 this morning because it’s undertaking a stress test.
The Wall Street Journal this morning quotes sources saying that the PBOC is seeing how far it can let the market push yuan’s level against the US dollar “without setting off a sharp selloff and incurring wrath from trading partners”.
“It’s a stress test of sorts,” one of the people said. “What the central bank is trying to avoid is the kind of panic selling that resulted from the August devaluation.”
As I highlighted earlier this week capital continues to flow out of China and China’s foreign exchange reserves are the lowest they’ve been since February 2013. Even with all the trade surpluses that China has racked up since then.
Stress test or not, clearly the Chinese currency is under heavy selling pressure. Something for traders to watch.
4. Commodity prices to bottom in 2016, you heard it here first. When I first became Westpac’s currency strategist in 1998, one of the things everyone wanted to talk to me about was the Commodity Research Bureau. They wanted to know where it was headed and so many investors wanted to talk to me about the 7 to 8 year CRB cycle. A lot of water has moved under the bridge since then – Westpac launched its own commodity index, the CRB is now the Thomsen Reuters CRB index and I’d completely forgotten about the 8-year cycle.
At least until David Scutt posted a nice little note yesterday highlighting that the CRB has hit a 13-year low. Just looking at the chart reminded me of the cycle. I’ve drawn the line on his chart but the impact is clear. The CRB cycle is alive and looks set to land in 2016. Could that be the low for commodities? I’m off to buy some BHP.
Here’s Scutty’s chart:
5. There was bullish news for oil last night, but it still fell. You know when a market is in full bear mode because traders just ignore anything that is bullish for prices. That’s the clear situation traders faced in the oil market overnight with news that there was a big reduction in inventory levels of more than 3 million barrels when the market expected inventory to grow more than 250 thousand barrels.
That helped Nymex crude pop all the way to $38.99 but it’s back at $37.32 this morning with the bears firmly in control.
6. The Kiwis just cut rates but the New Zealand dollar rallied. Markets are weird beasts sometimes. You’d think with the RBNZ having dropped rates from 2.75% back to 2.5% this morning that the Kiwi would have sold off. But because they appear to have dropped their easing bias and because RBNZ governor Wheeler has aped his central bank colleagues around the world and said Kiwi inflation is on the way back the New Zealand dollar has roared 1.32% higher to 0.7233.
David Scutt has everything you need to know about this morning’s move here.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
Wesfarmers (WES: ASX)
The average Santa rally in US stocks over the past 30 years kicks off on 15 December. This year that will be close to the Fed’s interest rate decision
So continuing the theme of looking for possible near term turning points in liquid stocks that would fit with the Santa rally theory , Wesfarmers might be of interest. The 78.6% Fibonacci retracement around $37.30 would fit with this scenario of a continued pull back over the next few days followed by a year end rally. However, the 61.8% level or just below (37.70 – 37.80) is also a candidate if the correction is relatively shallow. A decline to and rejection of either of these levels by the owner of Coles and Bunnings could be of interest.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC