6 things Australian traders will be talking about this morning

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Stocks slipped and there was an air of fear in the market moves overnight.

Crude pulled back, bonds rallied, gold spiked again, and the US dollar was a little stronger across the board except against the Kiwi which is hanging tough near 71 cents.

The combination of these moves has left the SPI 200 pointing to a weak open with the June futures contract down 27 points. If replicated that will put the ASX200 physical market right on the 5335 support zone the market has held for the past two days. A break suggests 5280 to the chartists.

The Aussie dollar fell heavily after an aborted foray above 75 cents yesterday in morning trade but it has held support overnight. Iron ore was up in US futures trade but copper is collapsing toward a 12-year uptrend line. Euro was lower after ECB president Mario Draghi warned that “subpar growth causes lasting damage” to Europe.

Here’s the scoreboard (7.52am):

  • Dow: 17985 -20 (-0.11%)
  • S&P 500: 2115 -4 (-0.17%)
  • SPI200 Futures (June): 5,335, -27 (-0.5%)
  • AUDUSD: 0.7429 -0.0055 (-0.93%)

Now, the Top Stories

1. The ASX could not hold gains again yesterday – here’s why. Try as they might, the materials index, the miners, couldn’t drive the ASX higher yesterday as the banks came under selling pressure again. Writing in his market wrap yesterday, Henry Jennings from Marcus Today said that “after a strong start to the session and a high of 5386 before the inevitable happened as resources tried valiantly to hold up the market Atlas-like, before the financials fell into a whole lot of trouble”.

The reason the banks came under pressure, Jennings said, is because the “mortgage wars” are back. Yesterday we learnt that the Commonwealth Bank is planning to cut investment property interest rates and slash minimum loans by more than 90 per cent, triggering claims by rivals of a price war between property investment lenders.

Clearly that means the bank must have slid under APRA’s 10% investor loan growth cap. And clearly it means the pressure from the CBA’s rate cut will put downward pressure on other banks to do the same. Already ME Bank has dropped rates on investor loans by a whopping 40 basis points – 0.40% – to 4.24%.

Price wars mean margin pressure. Price wars on investment loans, when the RBA and APRA are worried about the impact the growth of investor lending has on overall house price, risks the ire of both these bodies. It also suggests APRA’s cap of 10% in a low growth, low inflation environment might need to be lowered further.

No wonder the banks were down.

2. Goldman Sachs doesn’t like what it sees in the stock market right now. Bob Bryan reports that Goldman Sachs is getting nervous about stocks. He’s back with more from equity strategist Christian Mueller-Glissmann who said: “There are generally more negative than positive 3-standard deviation moves for equities, indicating a negative ‘skew’ for equity returns. And recently the balance has shifted further towards negative moves.”

Mueller-Glissmann seems to be fairly mainstream these days with his view that “elevated equity valuations and the lack of growth acceleration since mid-2014 have made equity markets more fragile”. It’s a view held by many. Yet the US market has continued to rally even though, as Mueller-Glissmann notes, “there have been several drawdowns because of ‘growth scares’ or external shocks during that period”.

This is the wall of worry markets are climbing. The question for traders is who’s right – prices on market or strategists?

3. It’s now less than two weeks till the Brexit referendum – could it derail markets in the lead-up?Last night we saw bonds rally, US dollar strength, gold move higher again, the yen strengthen on most crosses, and stocks and commodities a little lower. Any casual observer could tie these together and say they look very much like a risk aversion trade.

Of course, one day’s move doesn’t make a trend. But with all the warnings about the potential impacts of a vote to leave the EU it would be usual for traders and investors to start to put some money to the sides. Indeed the very action of risk managers in protecting their firms can cause this.

And why wouldn’t traders reduce risk. In the UK Telegraph, Ambrose Evans-Pritchard reports this morning that S&P has unequivocally said it will strip Britain of its AAA rating if it leaves the EU and he says S&P has warned that “Britain is the world’s most vulnerable state on a key measure of short-term debt and credit markets might suddenly seize up if voters opt for Brexit”.

4. George Soros is back selling the market – but here’s something important you may not know. Yesterday the news broke that George Soros is back at the helm of his massive $30 billion family office fund. “Family office” is a nice way of saying George is managing his own money, employees, and other close associates. Not other people’s money (OPM).

As Josh Brown, The Reformed Broker, points out, that lack of OPM makes a huge difference to the way Soros trades. He’s not wedded to his bearishness. Brown says the lack of OPM means:

He can, at a whim, change his mind, change the directional leaning of his trades and even completely rework his portfolio to bet the other way. This is hard to do when one is answering to outside investors or LPs. Actually, it’s probably no longer possible for 99% of fund managers in the modern age. Consultants need the narrative sold to them so they can pass it on to their clients. Schizophrenia works for people operating at Soros’s level, but it doesn’t sell well.

Brown also says it’s hard to replicate the Soros process. Both of these points are important for traders who are interested in Soros’s views and perhaps want to follow him.

So Brown says: “I’m going to go out on a ledge and suggest that your ‘combination of theory and instinct’ is probably not up to par with George’s. Mine either. Shocking, I know. It’s important to consider this before throwing your investment plan in the trash and running off to join the macro circus.”

5. Here’s another sign the US jobs market is strong and the Fed will be raising rates. This is a bit of a hobby horse. Not because I want the Fed to hike necessarily but because I know they aren’t a one-data-point central bank. That means things like the fall in jobless claims last week – which isn’t supposed to happen when the jobs market is weak – and the reading from the JOLTS survey are important.

Overnight Elena Holodny reported that it’s never taken longer for US businesses to fill a job opening. According to DHI Group’s DHI-DFH Mean Vacancy Duration measure, US businesses took an average of 29.3 working days to fill a job opening in April. That’s an all-time high, and a solid uptick from March’s revised 27.7 days.

No wonder wages are rising.

6. Time for the tin hat – Bill Gross says the bond market is a supernova which will explode. Myles Udland picked up on a tweet from Janus Capital’s bond guru Bill Gross which said that the $10 trillion of bonds in negative yield territory is a “supernova that will explode one day”.

Gross is right of course, because the folks buying this debt surely must know that central banks ARE trying to blow them up because they want inflation to accelerate. Inflation is to nominal bond holders as kryptonite is to Superman. But last night US yields rallied again. So that day is not today.

Have a great long weekend.

And as a bonus for your weekend Here’s the new ‘Devils and Details’ podcast Scutty and Paul Colgan started a few weeks back. This week’s guest is James Whelan, investment manager at VFS Group. Enjoy!

Key data for the past 24 hours (with thanks to BNZ markets)
NZ: RBNZ OCR (%), Jun: 2.25 vs. 2.25 exp.
JP: Machine orders, m/m% (Apr): -11.0 vs. -3.0 exp.
CH: CPI (y/y%), May: 2.0 vs. 2.2 exp.
GE: Trade balance (bn), Apr: 24.0 vs. 22.8 exp.

You can catch me on Twitter.

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

Amcor (AMC: ASX)

Yesterday was an awful session for shareholders of international packaging company, Amcor. The stock closed down 8% after writing off the value of its manufacturing business in Venezuela.

The company has owned plastics manufacturing plants in Venezuela for 20 years. They are efficient, profitable businesses but their operation is now being severely impaired by their inability to obtain foreign exchange to pay for imported materials. Assuming things stay bad or get worse, it’s likely to have a negative impact of around $20m on after tax profits next year.

One aspect of this from a shareholder’s point of view is that the problems are exogenous and not down to Amcor’s management. They’ve owned the businesses for a long time and global reach plus exposure to growth in emerging markets is one of the company’s attractive features. However, as this situation clearly demonstrates, there’s risk as well as growth opportunity in emerging markets.

The severity of yesterday’s sell off also reflects the fact that Amcor has been priced for perfection at around 21 times forward earnings. Yesterday, the stock came to rest around initial chart support and the 38.2% Fibonacci retracement level. However, downward momentum is strong. If it breaks below here, the more significant support could be around $13.80. This sees past resistance, the 40 week moving average and the 61.8% retracement level.

Ric Spooner, chief market analyst, CMC Markets

You can follow Ric on Twitter @ricspooner_CMC

Now listen to this week’s Business Insider Australia podcast: ‘Devils and Details’ with James Whelan on insanity on currency markets, Brexit, Guvera & more

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