6 things Australian traders will be talking about this morning

Members of the British Forces Combat Control team and members of the 62nd Special Tactics Sq., McChord Air Force Base, Wash., perform a High Altitude Low Opening (HALO) parachutte jump through heavy clouds at McChord AFB November 30, 1998. (photo by Jeffrey Allen/USAF)

Stocks in the US rose, and then fell overnight to leave the Dow and S&P down marginally but giving a real indication of a topping pattern.

The S&P 500 is off a little further in futures trade after the release of the Alcoa results.

That’s left the June SPI 200 futures at 4,901, down just a point lower but the US price action and the banks woes again yesterday (they couldn’t follow the positive lead from global banks Friday) suggest that the ASX could be in for another down day today. Of course the NAB business survey today might give some positive news, although the fractured nature of Australian politics might have something to say about that.

On forex markets, the US dollar was weaker which has lifted the Aussie up near 76 cents. The pound roared and the yen is below 108. Commodities had a good day, crude oil is up 1.5% and back above $40 and just below the very important 200-day moving average it touched overnight. Gold ripped higher again – uncertainty watch folks – and is back at $1257 while copper is at $2.08 a pound and US iron futures rose 2.5% to $54.63 a tonne.

Here’s the scoreboard (7.29am):

  • Dow: 17,556, -20 (-0.12%)
  • S&P 500: 2,041, -6 (-0.27%)
  • SPI200 Futures (June): 4,901, -1 (0.0%)
  • AUDUSD: 0.7597, 0.0047 (-0.62%)

Now, the Top Stories

1. Charlie Munger just had an epic rant about the state of finance – AND called Alan Greenspan an idiot. As well as writing for Business Insider, and being a director of an industry based bank, I’m a trader. Indeed, that’s probably my overriding personality trait. So it was with interest that I read the epic rant by Warren Buffett’s right-hand man Charlie Munger about the state of US – read “global” – finance.

He’s said just trading bits of paper is not a life – comparing it to the lords of England. He said there are too many ways to bet theses days, people have to do something real to be productive, have to be charitable and warned this could all end in tears. He noted that if global finance does actually succeed in blowing up the economy, then the scene will be set for the next Hitler. Oh, and he said former Fed chair Alan Greenspan is an “idiot”.

Great piece – scroll through to get to the transcript. It’s worth the read.

2. The NAB says Australia’s AAA rating is at risk. Peter Jolly, the NAB’s global head of research, says the Australian government’s debt position is sliding and now pushing up against rating agency limits. That means treasurer Scott Morrison is going to need to exhibit lots of restraint in his election budget on May 3 if he wants to keep the rating. It also means fiscal policy will remain a headwind to growth in Australia in the quarters and years ahead.

I’ve got more on Jolly’s note here.

3. Don’t be fooled – last night was a terrible night for stocks. Earnings season kicked off this morning with the release of Alcoa’s quarterly report showing the company beat on earnings but missed on revenues. While that came after the bell, the chances are that investors are tiring of the continued beats on earnings but misses on revenues because it speaks of engineered results not growth. We’ll see as earnings season continues.

That said, even before Alcoa, the price action in US stock markets on the day was actually pretty poor. The Dow made a high of 17,731 before finishing at 17,556 – down 21 points. The S&P 500 hit 2,062 before reversing course to close down 6 points at 2041. It’s down another 6 points in futures trade as I write. Technical traders will tell you the S&P looks like it is topping again. It looks like if 2,020 breaks, more selling could eventuate.

Australian stocks look set to open under pressure again today.

4. Riddle me this – if foreign investors are selling Japan, why is the yen rising? CLSA’s Japan analyst Nicholas Smith says foreign investors have sold as much as 10.8 trillion yen ($102 billion) of stocks since June 2015, reports Ben Moshinsky from BI UK. Smith says foreigners have now sold 43% of the Japanese stocks they bought since prime minister Shinzo Abe came to power in 2012.

Yet while offshore investors are selling stocks, the yen’s rally continues, it’s below 108 this morning, and former MoF official Eisuke Sakakibara – the man we used to call Mr Yen a long time ago – reckons USDJPY could drop to 105, maybe even 100.

How do you square that circle? The only way is to agree with the constant flow of actual official comments out of Japan that this is a speculative attack and the moves are “one-sided” as forex traders exploit the fact the market was looking the other way and have been belting USDJPY as a result. The yen’s rise needs to slow soon or intervention is inevitable. If China can do it, why not Japan?

Here’s the FT with a piece saying the yen strength is scary on many levels.

5. The world’s biggest investor gets something that central bankers and the IMF don’t – negative rates are bad for confidence. Akin Oyedele reports that BlackRock CEO Larry Fink says negative interest rates are lining up savers and the economy for “potentially dangerous financial and economic consequences”.

For me, as a behavioural economics and finance guy, Fink gets what central bankers don’t seem to grasp. Humans are freaked out by negative rates and they have the reverse impact by increasing the need to save.

“This reality has profound implications for economic growth: consumers saving for retirement need to reduce spending if they are going to reach their retirement income goals and retirees with lower incomes will need to cut consumption as well. A monetary policy intended to spark growth, then, in fact, risks reducing consumer spending,” Fink wrote.

Might I add that if developed markets are now driven by consumption, and assaulted by demographics, then perhaps central bankers need to recalibrate their tools.

6. Here it comes – the junk bond default cycle will kick off in 2017, says Deutsche Bank. Here’s one to keep an eye on. Nothing blows up finanicial markets like the results of a debt binge when the bonds issued, by corporations, banks, or sovereign nations lose value, or default. This year the focus has been on oil and gas bonds, their potential default and the effect that might have on bank losses. Yet with the recovery in the price of crude, many of those fears seem to have washed away.

Not so fast, says Oleg Melentyev and his team of US credit strategists at Deutsche Bank. Melentyev says rather than the troubles in debt going away, investors were just a year early. That’s bad news for global banks still under pressure and it’s bad news for markets more broadly as credit bombs have a funny way of setting off secondary market explosions everywhere. Ben Moshinsky has more here.

Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Credit spending retail (m/m, % ), Mar: 0.1 vs. 0.3 exp.
CH: CPI (y/y, %), Mar: 2.3 vs. 2.4 exp.

You can catch me on Twitter.

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

Newcrest Mining (NCM: ASX)

The US Dollar Index is within about 2% of support levels at the bottom of the range that has contained it for the last year. What happens around this support looks like a key question for world markets. A bearish break by the $US would have significant implications on a whole lot of fronts.

Although, not as well defined, gold and Newcrest Mining also have resistance a bit more than 2% above current levels. If the Dollar holds support, these resistance levels are likely to hold. If the Dollar support breaks; gold and Newcrest could be off and away.

The Newcrest resistance is made up of the previous high and 50% retracement around $18.60. Personally I’d be looking for an emphatic break of this resistance before jumping to bullish conclusions. Nudging through and oscillating around the resistance, would be more like bearish reversal behaviour.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

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