Russia has cobbled together a deal with a number of other non-OPEC members to join in with OPEC’s recent production cuts in a move which might propel oil prices higher when US futures open this morning.
That could help energy stocks on the ASX in what futures traders are betting is going to be another good day for the local stock market.
The December SPI 200 contract was up 23 points on Friday night after US stocks had another solid gain with the big indexes once again setting record closing levels. That came after US consumer sentiment rose again, hitting levels not seen in more than a decade.
It all combined to drive the US dollar and US bond rates sharply higher. US 10s closed the week at 2.465% while USDJPY is above 115 and euro is down at multi-year lows. Against that backdrop, the Aussie dollar hanging around in the mid 74 cent region isn’t terrible.
Here’s the scoreboard (7.38am AEDT):
- Dow: 19756 +142 (+0.72%)
- S&P 500: 2259 +13 (+0.59%)
- SPI 200 Futures (December): 5,582 +23 (+0.4%)
- AUDUSD: 0.7459 0.0000 (0.0%)
The top stories
1. The central bank’s central bank – the BIS – is out with its latest look at the globe and says a market ‘paradigm shift’ may be under way. Claudio Borio, Head of the Monetary and Economic Department at the BIS, said in comments accompanying the release of the outlook that “Developments during this quarter stand out for one reason: for once, central banks took a back seat… It is as if market participants, for once, had taken the lead in anticipating and charting the future, breaking free from their dependence on central banks’ every word and deed. In itself, this is healthy.”
Indeed it is. And while Borio wonders aloud whether recent moves are “a market overreaction or a paradigm shift”, he inadvertently suggests the market was ready for the change.
“What is surprising is that it took just one political event to seemingly dispel, in one fell swoop, the market’s belief in a future of persistently ultra-low interest rates, secularly low growth and disinflationary pressures. These events could finally represent the long-awaited beginning of a welcome normalisation process from the extraordinary post-crisis conditions. But the jury is still out, and caution is in order. And make no mistake: bond yields are still unusually low from a long-term perspective,” he said.
2. The paradigm shift isn’t just in markets – US consumers are uber-positive on a Trump presidency. For all the talk or manufacturing jobs and trade wars perhaps the most important impact of Donald Trump on the US economy has been what’s he’s done to consumer confidence. Remembering services, consumers, and consumption is the biggest piece of the US economy it is worth noting that the semi-monthly University of Michigan consumer-sentiment index released Friday unexpectedly spiked. The preliminary reading for December hit 98, the highest since January 2015.
“When asked what news they had heard of recent economic developments, more consumers spontaneously mentioned the expected positive impact of new economic policies than ever before recorded in the long history of the surveys,” said Richard Curtin, the survey’s chief economist.
Now all Trump has to do is deliver on expectations. Not easy but doable.
3. Carl Icahn is wondering if the Trumponomics rally has gone too far. But something he said explains why it could go further. Carl Icahn waded into the futures market on the night of the US presidential election and bought stocks. That’s turned out to be a great trade. But he’s wondering if maybe things have gone a little too far.
Akin Oyedele reports Icahn said on CNN that: “The market is going up — and maybe it’s gotten ahead of itself, I’m not going to say it hasn’t — but it is going up because it’s perceived that this is going to be a very pro-business presidency and government.” Exactly.
But what the rally has done also is caught some investors in cash short. So while they scramble to get their money to work, Icahn also says “certain investors are saying, ‘Hey look, why should I sell now when … I can save a lot of money by waiting till next year? So what happens is that a lot of stock is not offered, and therefore it’s very bid.” That’s double FOMO (fear of missing out) from the longs and the shorts. Icahn says there are many reasons the market could “turn on a dime” but double FOMO could be a powerful force toward year’s end.
4. US stocks have only been this expensive during the crash of 1929, the tech bubble, and the financial crisis. Bob Bryan reports that based on Nobel Laureate Robert Shiller’s P/E measure stocks are getting a bit pricey.
The Shiller P/E, which adjusts the price-to-earnings ratio for cyclical factors such as inflation, stood at 27.86 Friday. There have only been a few instances in history where stocks have been this expensive: just before the Crash of 1929, the years leading up to the tech bubble and its bursting, and around the financial crisis of 2007 to 2009.
It doesn’t mean that a crash is imminent. But it’s interesting nonetheless.
5. Asian currencies and markets have been under pressure from capital outflows in the post-election world. But Goldman Sachs says it likes these three Asian economies. Goldman is betting again on emerging markets, albeit on a select few countries and in a more cautious tone. India, Indonesia, and Philippines are the new favourites, reports Prashanth Perumal.
“All three countries stand at a similar stage in their economic development and share four common structural tailwinds which give them the potential to be Asia’s next domestic growth stories,” according to a note written by a team led by Goldman Sachs’ Nupur Gupta.
This is exactly what’s going on in this post-election market. Folks all over the globe are trying to pick winners and losers. It’s fantastic and should see correlations and overall risk fall as a result.
6. And of course it’s another big week ahead for traders with a calendar chock full of data and events. Whether it’s the NAB business survey, Australia’s jobs data, Chinese retail sales, industrial production, urban investment, or if it’s just the FOMC meeting, the week ahead has plenty of potential catalysts for movement.
I’ve had my usual weekly look at what lies ahead here.
From Ric Spooner at CMC Markets, here’s today’s Stock to Watch
Ramsay Health Care
Stock market confidence continues and the year-end rally scenario is front of mind for many traders. With many stocks having run pretty hard already, some of those recently sold off might represent better alternatives if you are positioning for a year-end rally.
Private hospital operator, Ramsay fits this category. It recently confirmed guidance for core profit growth of 10-12% in F17. After the recent sell-off, it’s trading at around 26.3 times forward earnings compared to an average of 28.4 times for the past 3 years.
The share price also showed signs of bouncing out of support. This is the old resistance zone of the mid 2015/16 trading range. Last week’s produced a hammer style candle with a long wick and small body with often produces a reversal. This might be confirmed by a daily close up through resistance of recent lows around $69.
Ric Spooner is chief market analyst at CMC Markets. You can follow Ric on Twitter: @ricspooner_CMC
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