6 things Australian traders will be talking about this morning

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After a terrible day for stocks on the ASX and TSE yesterday – where the 200 index dropped close to 3% and the Nikkei fell more than 5% – Europe had a tough night’s trade also with the FTSE, DAX and CAC all down more than 1%.

But US stocks have had a choppy night down and up and now closing flat for the day. It sets up another interesting day for local stocks with futures flat and the extremely important Commonwealth Bank earnings report to be released. That and the Nikkei will be important drivers.

Elsewhere the big news is the collapse of crude after an amazing report from the International Energy Agency overnight which said the recent recovery wouldn’t last. Crude crashed more than 4% and was far lower earlier.

The Aussie dollar has weathered the storm fairly well and is at 0.7055 after a low of 0.6971 while the yen, the most important currency in the world right now, is back above 115.

Here’s the scoreboard (7.49am):

  • Dow: 16,012, -14 (-0.1%)
  • S&P 500: 1,855, +2 (+0.1%)
  • SPI200 Futures (March): 4,781, +6 (+0.1%)
  • AUDUSD: 0.7055, -0.0024 (-0.35%)

And the top stories:

1.Too many tectonic plates are shifting at once and markets can’t cope. That’s the sobering introduction to a new research note from Gavin Friend, senior market strategist at the NAB in London.

Friend says the Fed has screwed things, essentially by not taking the obvious “end of the China-led commodity super cycle”, policy divergence, or the impact on the US dollar into account. It’s one of the best research notes I’ve read this year but it went out late last night so you may not have seen it. You can read more here.

2. This might be the fastest way to crush Australian stocks since the 1987 crash. Australia is one of only three jurisdictions which have a full dividend imputation system. But it is in many ways a cornerstone of small investors’ love affair with stocks as the dividends they get paid coming with a franking credit which can then be offset against the shareholder’s own tax bill.

(The Australian Investors Association has a nice little case study here which shows the power of imputation for private investors.)

But Innes Willox, CEO of the Australian Industry Group – writing in the AFR this morning – says that imputation should go in favour of a cut in the company tax rate from 30% to 20%. Without irony, he says:

While the large benefits of a company tax cut would come from the favourable employment and productivity gains from greater inbound investment, cutting the rate to around 20 per cent might be enough to dull the pain of lost imputation for domestic shareholders.

Let’s just think. What do Australian shareholders largely own? The top 20 stocks which pay franked dividends and are names the public knows and trusts. I wonder, did Willox float his plan past these companies first? Easy to see this as big business speaking to and on behalf of its constituency without worrying about knock-ons.

3. Ahem. Here’s a scary thought – Credit Suisse says markets are going to be lousy for a decade. Many people see John Hussman as an uber-bear. But one of the core tenets of what he has been saying over the past year or more is that the rally in stocks has pulled forward and discounted future returns to the extent that the next 10 years returns on stocks will be pretty disappointing.

But it seems Hussman is going mainstream with Jonathan Wilmot, head of macroeconomic research at Credit Suisse Asset Management, releasing a note saying that after an initial multi-year recovery in stock and bond prices after a crisis (the rally we saw through last year), comes a long stretch of lousy returns.

You can read more here. Best not to think about what that might mean for your super if you are 55 or older and thinking about retirement.

Oh, and speaking of Uber-bears, the broader SoC Gen research team has had a look at Albert Edward’s call that global stock markets could crash 75% and reckon it’s not as daft as many think.

4. The IEA delivered an amazing outlook for oil and crude crashed 6%. When the IEA report hit the street last night, Twitter went crazy with just how bearish it was for the supply-demand imbalance and the outlook for prices. There was no gilding the lily and Will Martin from BI UK summed it in nicely with the headline IEA: Don’t buy oil.

Enough said really and traders didn’t miss the message. Crude is down 5% at $28.22 and Morgan Stanley has now slashed its price target forecast by 50%.

But Julia La Roche reports some bloke who people call the oil trading “god” is losing on his bullish bet but not giving up. Can I recommend he change his nom-de-plume or read a little Aeschylus?

5. Here are five questions for Janet Yellen. More than 20 years ago the dealing room information ecosystem was much richer. We used to have Telerate, Reuters, and Knight-Ridder terminals while some of the bond guys had these ugly little machines called “Bloombergs” with this giant green ball in the middle of them. Back then, there was one writer who, at least in my old dealing room at State Super, we couldn’t wait to read when she published her column each week on Telerate. When she left, to go to Bloomberg I think, that was the end of Telerate for us. She’s now at MarketWatch and she has 5 very cogent questions for Janet Yellen as she marches up Capitol Hill tongiht to talk to Congress.

The questions Baum poses are are: Mea Culpa; married to the model; blind leading the blind or no-one listening; rotten to the core; and the big one, is there a plan B?

I am looking forward to the answers tonight.
6. Something positive – Westpac says we shouldn’t write off the US economy just yet. Richard Franulovich, Westpac’s New York based market strategist, released a note yesterday looking at the recent flow of US economic data. He reckons the worst of data deterioration may now be over. Not in the sense that the data will start to be strong but rather the often more important metric of where the market thinks the data will print.

Franulovich is essentially saying the market is all beared up and any possible bad news is baked into expectations. Time for some topside beats then, he reckons. David Scutt has more here.

You can catch me on Twitter.

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

SCA Property Group (SCP: ASX)

This is an example of a fairly common phenomenon where a “spin off” outperforms its parent. Spun out of Woolworths to improve its return on equity, shopping centre owner SCA, has done a lot better than its parent on the stock market.

It faces some headwinds in the shape of lower sales growth from Woolworth’s supermarkets as well as possible closure of some Dick Smith stores. Against that it has a low vacancy rates and decent growth prospects from speciality stores. Yesterday it produced a solid profit report and marginally upgraded its guidance for F16.

The chart looks as though it might be creating resistance around $2.23. A break above that would be constructive. There is trend line support around $2.05 while the major support is around the September lows at $1.85

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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